Which of the following statements best describes the tax consequences that arise from a contribution of capital to a corporation by an existing sole shareholder?
A)The shareholder recognizes a gain or loss on the transfer, and the corporation's basis in the property transferred equals its fair market value.
B)The shareholder does not recognize a gain or loss on the transfer, and the corporation's basis in the property transferred equals the shareholder's basis in the property transferred.
C)The shareholder recognizes a gain or loss on the transfer, and the corporation's basis in the property transferred equals the shareholder's basis in the property transferred.
D)The shareholder does not recognize a gain or loss on the transfer, and the corporation's basis in the property transferred equals zero.

Question

Quizplus · Accepted Answer

When a shareholder contributes capital to a corporation, there is no recognition of gain or loss by the shareholder. The corporation's basis in the property transferred is equal to the shareholder's basis in the property transferred. This basis becomes important when the corporation sells the property or depreciates it.

Which of the Following Statements Best Describes the Tax Consequences