Question

Ann and Bob form Robin Corporation. Ann transfers property worth $142,500 (basis of $49,875) for 70 shares in Robin Corporation. Bob receives 30 shares for property worth $57,000 (basis of $11,400) and for legal services (worth $5,700) in organizing the corporation. What gain or income, if any, will the parties recognize on the transfer?

Answer 1

Ann will recognize a gain of $92,625, while Bob will recognize a gain or income of $51,300 on the transfer of property to Robin Corporation.

Step-by-step explanation:

Ann and Bob will recognize gain or income on the transfer of property to Robin Corporation. In Ann's case, the gain recognized will be the fair market value of the property ($142,500) minus her basis ($49,875), resulting in a gain of $92,625. For Bob, he will recognize a gain equal to the difference between the fair market value of the property ($57,000) and his basis ($11,400), which is $45,600. Additionally, Bob will also recognize income for the legal services provided, which are worth $5,700. Therefore, Bob's total gain or income will be $45,600 + $5,700 = $51,300.