Question

Zhang incorporated her sole proprietorship by transferring inventory, a building, and land to the corporation in return for 100 percent of the corporation’s stock. The property transferred to the corporation had the following fair market values and adjusted bases:

	FMV			Adjusted Basis
Inventory	$	52,000		$	26,000
Building		390,000			260,000
Land		598,000			780,000
Total	$	1,040,000		$	1,066,000

The corporation also assumed a mortgage of $100,000 attached to the building and land. The fair market value of the corporation’s stock received in the exchange was $940,000. The transaction met the requirements to be tax-deferred under §351. (Negative amount should be indicated by a minus sign. Leave no answer blank. Enter zero if applicable.)

c. What is Zhang’s tax basis in the stock she receives in the exchange?

Assume the corporation assumed a mortgage of $1,140,000 attached to the building and land. Assume the fair market value of the building is now $650,000 and the fair market value of the land is $1,378,000. The fair market value of the stock remains $940,000.

g. What is the corporation’s adjusted basis in each of the assets received in the exchange?

Answer 1

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