Earl and Mary form Crow Corporation. Earl transfers property, basis of $200,000 and value of $1,600,000, for 50 shares in Crow Corporation. Mary transfers property, basis of $80,000 and value of $1,480,000, and agrees to serve as manager of Crow for one year; in return Mary receives 50 shares of Crow. The value of Mary's services is $120,000. With respect to the transfers:

a. Mary will not recognize gain or income.

b. Earl will recognize a gain of $1,400,000.

c. Crow will have a business deduction of $120,000 for the value of the services Mary will render.

d. Crow Corporation has a basis of $1,480,000 in the property it received from Mary.

e. None of these choices are correct.

Question

Alessandra Gilmore

Business

5 January, 22:59

Earl and Mary form Crow Corporation. Earl transfers property, basis of $200,000 and value of $1,600,000, for 50 shares in Crow Corporation. Mary transfers property, basis of $80,000 and value of $1,480,000, and agrees to serve as manager of Crow for one year; in return Mary receives 50 shares of Crow. The value of Mary's services is $120,000. With respect to the transfers:

a. Mary will not recognize gain or income.

b. Earl will recognize a gain of $1,400,000.

c. Crow will have a business deduction of $120,000 for the value of the services Mary will render.

d. Crow Corporation has a basis of $1,480,000 in the property it received from Mary.

e. None of these choices are correct.

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Answers (1)

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Alaina Bautista · Answer 1

Answer: The correct answer is "c. Crow will have a business deduction of $120,000 for the value of the services Mary will render.".

Explanation: With respect to the transfers: Crow will have a business deduction of $120,000 for the value of the services Mary will render.

This is calculated by the difference between the value of the property contributed by Earl $1 600 000 and the value of the property contributed by Mary $1 480 000.

1 600 000 - 1 480 000 = $ 120 000.