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In A, what does it mean by character of Barbara's gain or loss? I also think she has a loss here by transferring $25,000 yet Moore is assuming the $28,000 liability, so she has negative taxable income. However I thought with Section 351 that Barbara in this example would not be able to deduct from the stock transfer, so I think A is Zero. I am confused.
Liabilities in Excess of Basis. Barbara transfers $10,000 cash and machinery having a $15,000 basis and a $35,000 FMV to Moore Corporation in exchange for 50 shares of Moore stock. The machinery was used in Barbara’s business, originally cost Barbara $50,000, and is subject to a $28,000 liability, which Moore assumes. Sam exchanges $17,000 cash for the remaining 50 shares of Moore stock.
a. What are the amount and character of Barbara’s recognized gain or loss?
b. What is Barbara’s basis in the Moore stock?
Zero, as per the rule the basis of the transferors stock is Zero.
c. What is Moore’s basis in the machinery?
The basis of the machinery is the adjusted basis or $15,000.
d. What are the amount and character of Sam’s recognized gain or loss?
No gain or loss because he only transferred cash.
e. What is Sam’s basis in the Moore stock?
$17,000 the amount of cash he paid.
f. When do Barbara and Sam’s holding periods for their stock begin?
The day of the transaction since they are both receiving stock.
g. How would your answers to Parts a through f change if Sam received $17,000 of Moore stock for legal services (instead of money)?
Liabilities in Excess of Basis. Barbara transfers $10,000 cash and machinery having a $15,000 basis and a $35,000 FMV to Moore Corporation in exchange for 50 shares of Moore stock. The machinery was used in Barbara’s business, originally cost Barbara $50,000, and is subject to a $28,000 liability, which Moore assumes. Sam exchanges $17,000 cash for the remaining 50 shares of Moore stock.
a. What are the amount and character of Barbara’s recognized gain or loss?
b. What is Barbara’s basis in the Moore stock?
Zero, as per the rule the basis of the transferors stock is Zero.
c. What is Moore’s basis in the machinery?
The basis of the machinery is the adjusted basis or $15,000.
d. What are the amount and character of Sam’s recognized gain or loss?
No gain or loss because he only transferred cash.
e. What is Sam’s basis in the Moore stock?
$17,000 the amount of cash he paid.
f. When do Barbara and Sam’s holding periods for their stock begin?
The day of the transaction since they are both receiving stock.
g. How would your answers to Parts a through f change if Sam received $17,000 of Moore stock for legal services (instead of money)?
