Question

Upon the initial formation of a C corporation, which formation qualifies as tax-free under IRC section 351, the basis that a shareholder has in the stock that the shareholder receives in exchange for the property the shareholder contributed to the corporation is described as:

a. carryover basis
b. adjusted cost basis
c. cost basis
d. substituted basis

Answer 1

The basis that a shareholder has in the stock of a C corporation formed under IRC section 351 conditions is described as a carryover basis.

Step-by-step explanation:

Upon the initial formation of a C corporation, when formation qualifies as tax-free under IRC section 351, the basis that a shareholder has in the stock received in exchange for the property contributed to the corporation is known as a carryover basis. This means that the shareholder's basis in the contributed property is transferred to the shares of stock in the corporation, without any tax at the time of the transfer. It allows the corporation to take a step-up in basis when the property is eventually sold, based on the amount for which it was contributed initially.