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
Chapter21: Partnerships
Section: Chapter Questions
Problem 39P
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Transcribed Image Text: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 bccause they together own at lcast 80% of the stock
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