Which of the following statements best describes the "built-in loss" rules that apply to property transferred to a corporation under §351?
A)If the basis of a property transferred to a corporation under §351 exceeds its fair market value, the corporation will always take a tax basis in the property equal to the property's fair market value.
B)If the basis of a property transferred to a corporation under §351 exceeds its fair market value, the corporation will always take a tax basis in the property equal to the property's tax basis in the hands of the shareholder.
C)If the aggregate basis of all property transferred to a corporation under §351 exceeds its aggregate fair market value, the aggregate tax basis of the property in the hands of the corporation cannot exceed the aggregate fair market value of the property.
D)If the aggregate basis of all property transferred to a corporation under §351 exceeds its aggregate fair market value, the aggregate tax basis of the property in the hands of the corporation cannot exceed the aggregate tax basis of the property.

Question

Quizplus · Accepted Answer

The built-in loss rules under §351 apply when the aggregate basis of all property transferred to a corporation exceeds its aggregate fair market value. In this case, the aggregate tax basis of the property in the hands of the corporation cannot exceed the aggregate fair market value of the property. This is to prevent shareholders from transferring property with high tax bases and claiming losses that exceed the actual economic loss incurred by the corporation. Option A and B are incorrect because they do not take into account the aggregate basis of all property transferred. Option D is incorrect because it allows for the tax basis of the property in the hands of the corporation to exceed its fair market value, which goes against the built-in loss rule.

Which of the Following Statements Best Describes the "Built-In Loss