Rob and Yi form Bluebird Corporation with the following investments. $\begin{array}{lll}
&&\text { Fair Market }\
&\text { Adjusted Basis }&\text { Value }\
\text { From Rob-Cash}&\$400,000&\$400,000\
\text { From Yi -Land}&500,000&440,000\
\end{array}$
Each receives 50% of Bluebird's stock. In addition, Yi receives cash of $40,000. One result of these transfers is that Yi has a:
A) Recognized loss of $60,000.
B) Recognized loss of $20,000.
C) Basis of $460,000 in the Bluebird stock assuming Bluebird reduces its basis in the land to $440,000).
D) Basis of $400,000 in the Bluebird stock assuming Bluebird reduces its basis in the land to $440,000).
E) None of these.

Question

Rob and Yi form Bluebird Corporation with the following investments. $\begin{array}{lll}
&&\text { Fair Market }\
&\text { Adjusted Basis }&\text { Value }\
 \text { From Rob-Cash}&\$400,000&\$400,000\
 \text { From Yi -Land}&500,000&440,000\
\end{array}$
 Each receives 50% of Bluebird's stock. In addition, Yi receives cash of $40,000. One result of these transfers is that Yi has a:
A) Recognized loss of $60,000.
B) Recognized loss of $20,000.
C) Basis of $460,000 in the Bluebird stock assuming Bluebird reduces its basis in the land to $440,000).
D) Basis of $400,000 in the Bluebird stock assuming Bluebird reduces its basis in the land to $440,000).
E) None of these.

Quizplus · Accepted Answer

Yi's basis in the Bluebird stock is $460,000, calculated as the adjusted basis of the land ($500,000) minus the cash received ($40,000). Bluebird Corporation's basis in the land would be its fair market value at the time of the transfer ($440,000), but this does not affect Yi's basis in the stock.

Rob and Yi Form Bluebird Corporation with the Following Investments