A city contributes $500,000 to a corporation as an inducement to locate in the city. Within the next 12 months, the corporation uses the money to purchase property worth $500,000. The corporation has income of $500,000 and must reduce its tax basis in the property by the same amount.

Question

Quizplus · Accepted Answer

The $500,000 contributed by the city is generally considered a non-shareholder contribution to capital, not income to the corporation. Therefore, the corporation would not recognize this as income, and it would not reduce its tax basis in the property purchased with those funds.

A City Contributes $500,000 to a Corporation as an Inducement