Ann transferred land worth $200,000 with a tax basis of $40,000, to Brown corporation, an existing entity, for 100 shares of its stock. Brown corporation has two other shareholders, Bill and Bob, each of whom holds 100 shares. With respect to the transfer: a. Ann has no recognized gain. b. Brown Corporation has a basis of $160,000 in the land. c. Ann has a bias of $200,000 in her 100 shares in Brown Corporation. d. Ann has a basis of $40,000 in her 100 shares in Brown Corporation. e. none of the above.

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Business

Lexi Lang

16 July, 17:08

Ann transferred land worth $200,000 with a tax basis of $40,000, to Brown corporation, an existing entity, for 100 shares of its stock. Brown corporation has two other shareholders, Bill and Bob, each of whom holds 100 shares. With respect to the transfer: a. Ann has no recognized gain. b. Brown Corporation has a basis of $160,000 in the land. c. Ann has a bias of $200,000 in her 100 shares in Brown Corporation. d. Ann has a basis of $40,000 in her 100 shares in Brown Corporation. e. none of the above.

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Jennings · Answer 1

c. Ann has a bias of $200,000 in her 100 shares in Brown Corporation.

Explanation:

As Ann traded an asset worth 200,000 for 100 shares her basis for the shares will be 200,000

Also, it will recognize a 160,000 capital gain because it traded the land which basis is 40,000 for 200,000 it has realized the capital gain thus, it is taxable now.

The land will enter Brown Corporation as 200,000 not 160,000.