Question

Adam transfers cash of 300,000 and land wortH₂00,000 to Camel Corporation for 100

1) Adam has taxable income of $50,000.
2) Camel Corporation has a tax deduction of $50,000.
3) Camel Corporation reduces its basis in the land to $150,000.
4) Adam has no taxable income from the distribution.
5) None of these choices are correct.

Answer 1

The best answer based on the given data and assuming control by Adam post-transfer appears to be option 4: Adam has no taxable income from the distribution, as per IRC Section 351's provision for non-recognition of gain or loss on transfers to a corporation in control situations.

Step-by-step explanation:

The question is focused on the tax implications of a contribution of assets to a corporation by an individual. Adam is transferring cash and land to Camel Corporation in exchange for stock. The primary concern is how this transaction would be treated for income tax purposes, for both Adam and Camel Corporation. Generally, under IRC Section 351, if a person transfers property to a corporation in exchange for its stock, and immediately after the exchange is in control of the corporation, the exchange is usually tax-free to the transferor. Adam's control of Camel Corporation after the transfer is assumed but not stated explicitly in the question. Thus, Adam would typically not recognize any taxable income from this exchange, suggesting that option 4) 'Adam has no taxable income from the distribution' might be correct, but only if he was in control of the corporation after the exchange.

As for Camel Corporation, it would take a carryover basis in the assets transferred; that is, it would inherit Adam's basis in the cash and land. There should be no tax deduction for receiving these assets in exchange for stock. Thus, options 2) and 3) are incorrect.