Last year, Toby made a capital contribution of a pretzel maker having a $2,000 adjusted basis and a $200 FMV to Keke Corporation in exchange for additional stock. This year, Keke Corporation adopted a plan of liquidation. Prior to the adoption of the liquidation plan, Keke had not used the pretzel maker in connection with the conduct of its trade or business. Which of the following statements is true?
A)Keke Corporation may recognize a loss of $1,800.
B)Keke Corporation may recognize a loss of $200.
C)Keke Corporation's basis for determining the loss will be $2,000.
D)Keke Corporation's basis for determining the loss will be $200.

Question

Quizplus · Accepted Answer

Keke Corporation's basis for determining the loss will be $200, which is the fair market value of the pretzel maker at the time of contribution, as it was not used in the business.

Last Year, Toby Made a Capital Contribution of a Pretzel