Ron transfers assets with a $100,000 FMV (basis $60,000) and $70,000 of business- related liabilities to a corporation in exchange for 100% of the corporation's stock with a FMV of $30,000. The corporation assumes the $70,000 mortgage. The transfer qualifies under Sec. 351. What is the adjusted basis of the stock received?

Question

Quizplus · Accepted Answer

Under Sec. 351, the basis of the stock received is the basis of the property transferred ($60,000) minus the liabilities assumed by the corporation ($70,000), resulting in a negative basis. However, the basis cannot be negative, so it is reduced to $0.

Ron Transfers Assets with a $100,000 FMV (Basis $60,000) and $70,000