Question

When determining whether liabilities assumed by a corporation exceed the basis of property transferred by a shareholder, items such as accounts payable and accrued vacation pay are ______ in the calculation.

a. included.
b. excluded.
c. treated as additional consideration.
d. deducted from the total liabilities.

Answer 1

Liabilities such as accounts payable and accrued vacation pay are included in the calculation when determining if liabilities assumed by a corporation exceed the basis of property transferred by a shareholder.

Step-by-step explanation:

When determining whether liabilities assumed by a corporation exceed the basis of property transferred by a shareholder, items such as accounts payable and accrued vacation pay are included in the calculation. This includes all liabilities that the corporation assumes, not just those directly related to the transferred assets. By including these liabilities in the calculation, it reflects the actual economic outlay the corporation must make upon assuming the responsibility for such liabilities. Ensuring these calculations are accurate is crucial for tax purposes, specifically concerning the recognition of gain by the transferring shareholder under the U.S. tax code.