Moustapha and Ava have owned X Corp as equal shareholders for the last five years. Due to unexpected growth, X Corp needs an additional storage facility. In the current year, Moustapha contributes a parcel of land to X Corp that will be used to build this facility. Moustapha purchased the land 10 years ago for $10,000 and has held it as an investment. The land has a fair market value at the time of contribution of $100,000. Moustapha will receive additional stock in exchange for the land so that after the land contribution he will own 70% of the stock of X Corp. What are the tax consequences to Moustapha and Ava of the contribution of land? O Moustapha recognizes $90.000 of capital gain and Ava recognizes no gain O The entire $100,000 fair market value of the land is ordinary income to Moustapha: Ava has no income O Moustapha must recognize half of the $90,000 of realized gain and Ava recognizes the other half O Neither Moustapha nor Ava has any tax conscquences upon the land contribution because they together own at least 80% of the stock
Moustapha and Ava have owned X Corp as equal shareholders for the last five years. Due to unexpected growth, X Corp needs an additional storage facility. In the current year, Moustapha contributes a parcel of land to X Corp that will be used to build this facility. Moustapha purchased the land 10 years ago for $10,000 and has held it as an investment. The land has a fair market value at the time of contribution of $100,000. Moustapha will receive additional stock in exchange for the land so that after the land contribution he will own 70% of the stock of X Corp. What are the tax consequences to Moustapha and Ava of the contribution of land? O Moustapha recognizes $90.000 of capital gain and Ava recognizes no gain O The entire $100,000 fair market value of the land is ordinary income to Moustapha: Ava has no income O Moustapha must recognize half of the $90,000 of realized gain and Ava recognizes the other half O Neither Moustapha nor Ava has any tax conscquences upon the land contribution because they together own at least 80% of the stock
Chapter2: Income Tax Concepts
Section: Chapter Questions
Problem 64IIP
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