Book #McGraw-Hill s Taxation of Individuals and Business Entities 2016 Edition 7th Edition
Harry and Sally formed Empire Corporation on January 2. Harry contributed cash of $500,000 in return for 50 percent of the corporation's stock. Sally contributed a building and land with the following fair market values and adjusted basis in return for 50 percent of the corporation's stock. FMV Adjusted basis Building 180,000 150,000 Land 420,000 500,000 Total $600,000 $650,000 To equalize the exchange, Empire Corporation paid Sally $100,000 in addition to her stock. a. What amount of gain or loss does Sally realize on the formation of the corporation? b. What amount of gain or loss, if any, does she recognize? c. What is Sally's tax basis in the stock she receives in return for her contribution of property to the corporation? d. What adjusted basis does Empire Corporation take in the land and building received from Sally?