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AccountingNerd8
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Posted: 28 Dec 2009 at 13:48 \| IP Logged

Wiley2009 pg. 562:

1. No gain or loss is recognized if property is transferred to a corporation soley in exchange for stock and immediately after the exchange those persons transferring property control the corporation.

MCQ 5: Feld, the sole stockholder of Maki Corp., paid $50,000 for Maki's stock in 2002. In 2008, Fled contributed a parcel of land to Maki but wasn't given any additional stock for this contribution. Feld's basis for the land was $10,000, and it's FMV was $18,000 on the date of transfer. What is Feld's ajusted basis for the Maki stock?

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cpa0123
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Posted: 28 Dec 2009 at 13:51 \| IP Logged

It is $60,000. Since this is a non-taxable event, basis would be the adjusted basis of shareholder. FMV should not be considered.

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AccountingNerd8
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Posted: 28 Dec 2009 at 14:05 \| IP Logged

But no additional stock was received, so wouldn't the Sec. 351 non-recognition Rule not apply?

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cpa0123
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Posted: 28 Dec 2009 at 14:30 \| IP Logged

Non-recognition in Sec 351 pertains to the gain or loss. Basis would however be affected. Hence this should be given the same treatment as you would when a shareholder (controlling interest) makes a contribution initially for purchase of a Company's stock. It applies to unlimited number of transactions.
In the above example, had it been a taxable event (say for eg, that the shareholder also rendered services @ $5,000 FMV), basis would be $65,000 and $5,000 is taxable.

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AccountingNerd8
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Posted: 29 Dec 2009 at 11:09 \| IP Logged

ok...thanks

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