Sybil transfers property with a tax basis of $5,000 and a fair market value of $6,000 to a corporation in exchange for stock with a fair market value of $3,000 and $2,000 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $1,000 on the property transferred. What is Sybil's tax basis in the stock received in the exchange?

Question

Quizplus · Accepted Answer

The shareholder's tax basis equals her tax basis in the property transferred of $5,000 (a substituted basis) plus gain recognized of $1,000 less boot received of $2,000 less the $1,000 liability assumed by the corporation. If Sybil sells the stock for $3,000, no gain or loss will be realized.

Sybil Transfers Property with a Tax Basis of $5,000 and a Fair