Rachel has a taxable gain of $170,000, calculated as the difference between the fair market value and the tax basis of the installment obligation transferred for additional stock in Cardinal Corporation.
In this scenario, the correct option is:
a. Rachel has a taxable gain of $170,000.
When Rachel transfers an installment obligation with a tax basis of $180,000 and a fair market value of $350,000 for additional stock in Cardinal Corporation worth $350,000, the taxable gain is calculated as the excess of the fair market value over the tax basis.
Taxable Gain = Fair Market Value - Tax Basis
Taxable Gain = $350,000 - $180,000
Taxable Gain = $170,000
Therefore, Rachel has a taxable gain of $170,000 on the transfer. This gain represents the difference between the fair market value of the installment obligation and its tax basis.
Option (a) suggests a taxable gain of $170,000.
The question probable may be:
Rachel owns 100% of the stock of Cardinal Corporation. In the current year Rachel transfers an installment obligation, tax basis of $180,000 and fair market value of $350,000, for additional stock in Cardinal worth $350,000. a. Rachel has a taxable gain of $170,000. b. Rachel recognizes no gain on the transfer. c. Rachel has a taxable gain of $180,000 d. Rachel has a basis of $350,000 in the additional stock she received in Cardinal Corporation Os. None of these choices are correct.