Nigel and Frank form NFS, Inc. an electing S corporation, by combining the assets of their respective businesses. Nigel contributes $10,000 and assets worth $90,000 (adjusted basis of $60,000) for a 1/3 interest. Frank contributes $90,000 and assets worth $270,000 (adjusted basis of $150,000) for a 2/3 interest. NFS also assumes $60,000 of debt on Frank's assets. What is Nigel's basis in his stock?

Question

Quizplus · Accepted Answer

To determine Nigel's basis in his stock, we need to first calculate the total value of the assets contributed by both Nigel and Frank:

Nigel's assets contributed = $90,000 - $60,000 (adjusted basis) + $10,000 cash contribution = $40,000 + $10,000 = $50,000

Frank's assets contributed = $270,000 - $150,000 (adjusted basis) = $120,000

Total assets contributed by both = $50,000 + $120,000 = $170,000

Since Nigel's 1/3 interest represents $170,000/3 = $56,666, then his basis in his stock is $56,666 + $13,333 (his cash contribution) = $70,000.

Nigel and Frank Form NFS, Inc