Ann transferred land worth $200,000 with a tax basis of $40,000 to Brown Corporation, an existing entity, for 100 shares of its stock. Brown Corporation has two other shareholders, Bill and Bob, each of whom holds 100 shares. With respect to the transfer:

Ann has a bias of $200,000 in her 100 shares in Brown Corporation.

Explanation:

The full question is as follows;

Ann transferred land worth $200,000 with a tax basis of $40,000, to Brown corporation, an existing entity, for 100 shares of its stock. Brown corporation has two other shareholders, Bill and Bob, each of whom holds 100 shares. With respect to the transfer: a. Ann has no recognized gain. b. Brown Corporation has a basis of $160,000 in the land. c. Ann has a bias of $200,000 in her 100 shares in Brown Corporation. d. Ann has a basis of $40,000 in her 100 shares in Brown Corporation. e. none of the above.

Answer

Ann has a bias of $200,000 in her 100 shares in Brown Corporation.

Explanation

From the question, we can see that Ann traded 200,000 worth of asset for 100 shares.

What this means is that the basis of her shares will be 200,000

We can also see that a capital gain of 160,000 is recognized. The capital gain is recognized because the land which was traded has a basis of 40,000 for 200,000. This makes it taxable due to the capital gain.

Hence, the land will enter Brown Corporation as 200,000 and not 160,000

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