Carl transfers land to Cardinal Corporation for 90% of the stock in Cardinal Corporation worth $20,000 plus a note payable to Carl in the amount of $40,000 and the assumption by Cardinal Corporation of a mortgage on the land in the amount of $100,000. The land, which has a basis to Carl of $70,000, is worth $160,000.
A) Carl will have a recognized gain on the transfer of $90,000.
B) Carl will have a recognized gain on the transfer of $30,000.
C) Cardinal Corporation will have a basis of $70,000 in the land transferred by Carl.
D) Cardinal Corporation will have a basis of $160,000 in the land transferred by Carl.
E) None of these.

Question

Quizplus · Accepted Answer

Carl's transfer of land to Cardinal Corporation involves receiving both stock and a note payable, which does not qualify for non-recognition of gain under Section 351 of the Internal Revenue Code because he received something other than stock (the note payable and the assumption of the mortgage). However, the specific details provided do not match any of the outcomes described in options A, B, C, or D exactly, leading to the conclusion that none of these options are correct without more information on how to calculate the recognized gain and the corporation's basis in the land.

Carl Transfers Land to Cardinal Corporation for 90% of the Stock