Homework 1 - Homework 1 1 Anna transferred land with an...

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Homework 1 1. Anna transferred land with an adjusted basis to her of $20,000 and a fair market value of $56,000 to Elm Corporation in exchange for 100% of Elm Corporation’s only class of stock. The land was subject to a liability of $26,000, which Elm assumed for legitimate business purposes. The fair market value of Elm’s stock at the time of the transfer was $30,000. What is the amount of Anna’s recognized gain? Explain. Under section 357(c), when a property is transferred to a controlled corporation along with a liability which exceeds the adjusted basis of the property transferred, the excess liability is taxed as a gain to the transferor, and their basis in the stock received would be zero. In this case, Anna received 100% of Elm Corporation’s only class of stock, which means section 357(c) applies. Anna should recognize $6000 gain calculated as follows: Liability assumed by corp. 26000 Less: A/B of land transferred 20000 Recognized Gain 6000 2. John Smith transferred money and property to Corporation X solely in exchange for stock in X.
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