Individuals Rhett and Scarlet form Lady Corporation. Rhett transfers land and a building with a $140,000 adjusted basis and a $230,000 FMV in exchange for 50% of the stock of Lady Corporation worth $210,000 and a $20,000 note. Scarlet contributes cash of $230,000 for 50% of the stock of Lady Corporation worth $210,000 and a note of the Lady Corporation valued at $20,000. Rhett's recognized gain on the transfer is

Question

Quizplus · Accepted Answer

Rhett's recognized gain is the lesser of the realized gain or the boot received. The realized gain is $90,000 ($230,000 FMV - $140,000 adjusted basis). The boot received is $20,000 (the note). Therefore, the recognized gain is $20,000.

Individuals Rhett and Scarlet Form Lady Corporation