ExpertHard1 markMultiple Choice
CPA · Question 28 · Area V: Entity Taxation
Shareholders A (80%) and B (20%) form a C Corporation. A contributes property with a basis of $20,000 and FMV of $80,000. B contributes services worth $20,000. What is the tax consequence to Shareholder A?
Shareholders A (80%) and B (20%) form a C Corporation. A contributes property with a basis of $20,000 and FMV of $80,000. B contributes services worth $20,000. What is the tax consequence to Shareholder A?
Answer options:
A.
$62,000 gain recognized.
B.
$50,000 gain recognized.
C.
$60,000 gain recognized.
D.
No gain recognized.
How to approach this question
1. Identify transferors of PROPERTY (A only). 2. Do they own >= 80%? (Yes, A owns 80%). 3. If yes, §351 applies to them. 4. Service provider (B) always recognizes income.
Full Answer
C.$60,000 gain recognized.✓ Correct
C
.
Common mistakes
Thinking B's service contribution invalidates A's control. (It would only invalidate if A owned <80%).
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