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Kevin transfers land worth $500,000, basis of $100,000, to a newly formed corporation, Robin Corporation, for...

Kevin transfers land worth $500,000, basis of $100,000, to a newly formed corporation, Robin Corporation, for all of Robin’s stock, worth $300,000, and a 10-year note. The note was executed by Robin Corp. and made payable to Kevin in the amount of $200,000. Because of the transfer:

a.

Kevin does not recognize gain.

b.

Kevin recognizes gain of $400,000.

c.

Robin Corporation has a basis of $100,000 in the land.

d.

Robin Corporation has a basis of $300,000 in the land.

please explain in detail
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Answer #1

The $200,000 note executed by Robin Corp. and payable to Kevin is the amount of boot. Kevin is taxed on the realized gain under section 356a to the extent of boot received. So, here on Kevin, transferring land worth $500,000, basis of $100,000, to a Robin Corporation, he will have realized gain of $200,000 (which is lower of boot received i.e. $200,000 and gain on transfer of property i.e. $400,000 ($500,000 - $100,000).

The basis of the land to Robin would be equal to the basis Erica had in the land, $100,000, plus the gain recognized by Erica, $200,000 i.e. $300,000.

So, here the correct option is d. Robin Corporation has a basis of $300,000 in the land.

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