Wally contributes land (adjusted basis of $30,000;fair market value of $100,000)to a C corporation in a transaction which qualifies under § 351.The corporation subsequently sells the land for $120,000,recognizing a gain of $90,000 ($120,000 - $30,000).If Wally owns 30% of the stock,$76,000 [$70,000 + 30%($20,000)] of the $90,000 recognized gain is allocated to Wally.

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Under § 351, when property is transferred to a corporation in exchange for stock, the corporation takes a carryover basis in the property, which is the same as the transferor's adjusted basis. Therefore, the corporation's gain is calculated based on the adjusted basis of $30,000, not the fair market value. The gain of $90,000 is recognized by the corporation, but it is not allocated to Wally based on his stock ownership percentage. The gain is recognized by the corporation itself, not the shareholder.

Wally Contributes Land (Adjusted Basis of $30,000;fair Market Value of $100,000)to