Question

Mackenzie incorporates her sole proprietorship, transferring it to newly formed Omega Corporation. The assets transferred have an adjusted basis of $300,000 and a fair market value of $400,000. Also transferred was $50,000 in liabilities, $5,000 of which was personal and the balance of $45,000 being business related. In return for these transfers, Mackenzie receives all of the stock in Omega Corporation.

		None of the above
		Omega Corporation has a basis of $305,000 in the property.
		Omega Corporation has a basis of $300,000 in the property.
		Mackenzie's basis in the Omega Corporation stock is $300,000.
		Mackenzie's basis in the Omega Corporation stock is $340,000.

Answer 1

Answer : Mackenzie's basis in the Omega Corporation stock is $300,000.

Whether you're setting up a new corporation with just yourself or other people, such as partners in a partnership, or getting involved in an existing corporation, under IRC Section 351(a) you can defer (put off) any resulting tax consequence.

Under section 351(a) no gain or loss is recognized (reported) provided:

• You receive ONLY STOCK in exchange for your property, and
• You are in CONTROL of the corporation immediately after the exchange

In the give case above conditions are satisfied hence as per sec.351 no gain or loss is recognised hence basis will remain same for shares received in exchange of shares