Question

Shirin contributes cash of $10,000, a computer with a market value of $1,000 (her basis is $500), and land with a market value of $80,000 (her basis is $20,000) to a corporation in exchange for stock that qualifies under §351. How much gain or loss did Shirin realize and recognize?

a. Gain of $10,500; Recognize $10,500
b. Loss of $10,500; Recognize $10,500
c. No gain or loss; No recognition
d. Gain of $11,500; Recognize $11,500

Answer 1

In Shirin's exchange of cash, computer, and land for stock under §351, she realizes a gain of $60,500 but does not recognize any gain or loss at the time of the transaction due to the tax provisions of §351.

Step-by-step explanation:

When Shirin contributes cash, a computer, and land to a corporation in exchange for stock that qualifies under §351, the gain or loss she realized and recognized depends on the specifics of the transaction and the tax code provisions. Under §351, no gain or loss is recognized if property is transferred to a corporation by one or more persons solely in exchange for stock in such corporation and immediately after the exchange such person or persons are in control of the corporation. In Shirin's case, she realizes a gain but does not recognize it. The gain realized is the difference between the market value of the contributions and her basis in them. For the computer, the gain is $1,000 - $500 = $500. For the land, the gain is $80,000 - $20,000 = $60,000. The total gain realized is therefore $500 (computer) + $60,000 (land) = $60,500. However, because this transaction qualifies under §351, Shirin will not recognize any gain or loss at the time of the exchange.