Mrs. Brinkley transferred business property (FMV $340,200; adjusted tax basis $111,700) to M&W Inc. in exchange for 4,200 shares of M&W stock. Immediately after the exchange, M&W had 7,800 shares of outstanding stock. Compute M&W's recognized gain on its exchange of stock for property and determine M&W's tax basis in the property received from Mrs. Brinkley.

Question

Quizplus · Accepted Answer

This is a non-recognition exchange under Section 351, as long as M&W assumed a liability or liabilities on the property transferred. Since there is no information stating otherwise, we can assume that M&W did assume the liability, and therefore the exchange is non-taxable, and M&W's tax basis in the property received is equal to Mrs. Brinkley's adjusted tax basis in the property, which is $111,700. Therefore, the correct answer is B: no gain recognized, $340,200 tax basis in property.

Mrs Brinkley Transferred Business Property (FMV $340,200; Adjusted Tax Basis