Sarah transfers property with an $80,000 adjusted basis and a $100,000 FMV to Super Corporation in a Sec. 351 transaction. Sarah receives stock with an $85,000 FMV and a short-term note with a $15,000 FMV. Sarah's basis in the stock is
A)$100,000.
B)$95,000.
C)$85,000.
D)$80,000.

Question

Quizplus · Accepted Answer

In a Section 351 transaction, the basis of the stock received is equal to the basis of the property transferred ($80,000), adjusted for any gain recognized or additional consideration received. Since the note received is considered boot (a form of payment other than stock), and its value does not exceed the gain realized ($100,000 FMV - $80,000 basis = $20,000 gain), Sarah does not recognize any gain. Therefore, her basis in the stock remains at her basis in the transferred property, $80,000.

Sarah Transfers Property with an $80,000 Adjusted Basis and a $100,000