Answers
a. Sam realizes a gain of $49,600 on this transfer,
Calculation is as follows:
Fair market value of stock received = $124,000
Adjusted tax basis of inventory transferred = $74,400
Gain = $49,600 (Fair Mkt. Value - Adjusted tax basis)
b. Sam’s tax basis in the stock he receives in return for his contribution of property is $74,400, substituted basis equal to the basis of the inventory transferred.
c. Devon has compensation income of $31,000. Devon is not entitled to tax deferral under U.S. Code § 351 because services are not considered property.
d. Devon’s tax basis in the stock he receives is $31,000, equal to the income recognized on the receipt of the stock in exchange for services
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