A taxpayer contributes property with a basis of $10,000 and FMV of $20,000 to a C corporation in exchange for 100% of the stock. The taxpayer also receives $2,000 in cash. What is the recognized gain?

Answer options:

$2,000

$10,000

$12,000

How to approach this question

Section 351: No gain unless Boot received. Gain = Lesser of Realized Gain or Boot.

Full Answer

B.$2,000✓ Correct

Under IRC §351, no gain is recognized if property is transferred for stock and control is established. However, if 'boot' (cash) is received, gain is recognized to the extent of the lesser of the realized gain ($10,000) or the boot received ($2,000).

Common mistakes

Recognizing the full realized gain.

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