Question

5. Rose bought a piece of land 3 years ago for $33. Today the fair market value is $100 and she transfers it to Flower Inc in exchange for all 100 shares of Flower's voting common stock worth $100. There are no other shareholders. a. Does Rose recognize gain on the transfer, show the calculation of gain or loss realized and gain or loss recognized labeled the way we do it in class. b. What is Rose's basis in the stock? Show the solution, properly labeled. c. What is Rose's holding period in the stock? d. What is Flower's basis in the land? e. What is Flower's holding period for the land f. Would your answer to part (b) and (d) change if the fair market value of the land were $50 and Rose's basis was $75? If yes, what would the answers change to?

Answer 1

Solution & a) As per taxation provisions, xeither gain nor lass is recognized upon the transfer by one or more persons of propesty to a corporation solely in exchange for stock in that corporation if immediatly after the exchange, such pesson or persons control the corporation. The above, given cose Land transferred by Rose in exchange of Shares and after exchange Rose will control the flower Inc. * Therefore Rose will not recognize gain on transfor. Rose basis in stock = adjusted basis of property + gain recognized - Boot received b = $ 33+0-0 C) As per sec. 1231 assets, Rose holding period in stock will be 34

d) flower basis in land = Adjusted basis of property to transfert gain recognized - $3340 As per taxation provisions, the transfer corporationis holding period includes the period of time the property was held by the transfer. Therefore, flower's holding period for land will be Byears.