Question

Mr. Bass transferred a building that had an adjusted basis to him of $300,000 and a fair market value of $500,000, to Corporation C solely in exchange for 100% of C’s only class of stock. The building was subject to a mortgage of $100,000, which C assumed for bona fide business purposes. The fair market value of the stock on the date of transfer was $550,000. What is the amount of gain to be recognized by Mr. Bass?

Answer 1

$0

Step-by-step explanation:

This transaction classifies as a § 351 exchange since Mr. Bass is exchanging his asset for 100% of Corporation C's stock.

§ 351 establishes that no gain or loss must be recognized when property is transferred in exchange for stock in a corporation. In order for this exchange to classify as § 351, the new stockholder must assume immediate control of the corporation as established by § 368 (c). This means that at least 80% of the stocks must be exchanged.