Can someone help me understand why they use Basis for Porter and FMV for Corley in the question below? I chose answer D incorrectly.
Porter, the sole shareholder of Preston Corp., transferred property to the corporation as a contribution to
capital. Two years later, Corley transferred property to the corporation in exchange for a 10% interest in
corporate stock. The property transferred was valued as follows:
Porter's transfer Corley's transfer
Basis $50,000 $250,000
Fair market value 200,000 500,000
What amount represents the corporation's basis in the property received?
A. $700,000
B. $550,000
C. $450,000
D. $300,000
Explanation
Choice “B” is correct. Porter's transfer is not taxable because the 80% control test is met. The
corporation's basis in the property is the basis of $50,000. Corley's transfer is taxable because the 80%
control test is not met. The corporation's basis in the property is $500,000. The corporation's total basis
in the properties is $550,000 ($50,000 + $500,000).
Choice “D” is incorrect. $300,000 would be correct if the basis of both properties used carryover basis.
AUD - 80
BEC - 77
FAR - 79
REG - 77
Finally
free of the CPA cloud hanging over my head. Moving on.....
Graduated 05/2016.
NY CPA Candidate.
Public accounting.
FAR COMING UP 07/07/2016 !! GOD HELP ME.
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