Answer:
(a) Gain or loss to the seller:
= Adjusted basis - Fair market value
= $17,000 - $12,000
= $5,000 (Loss)
No loss will be recognized since the B and P are brothers. As per section 267, such loss is disallowed.
Hence, Loss of $5,000 will not be recognized.
Fair market value is considered as adjusted basis to buyer. Hence, the adjusted basis for the buyer is $12,000.
(b)
Gain or loss to the seller:
= Adjusted basis - Fair market value
= $85,000 - $70,000
= $15,000 (Loss)
Transaction a and b are not related party as per section 267.
Fair market value is considered as adjusted basis to buyer. Hence, the adjusted basis for the buyer is $70,000.
(c)
Gain or loss to the seller:
= Adjusted basis - Fair market value
= $20,000 - $19,000
= $1,000 (Loss)
Recognized loss to seller = $0, since s owns whole stock of corporation.
Fair market value is considered as adjusted basis to buyer. Hence, the adjusted basis for the buyer is $19,000.
(d)
Gain or loss to the seller:
= Adjusted basis - Fair market value
= $20,000 - $18,500
= $1,500 (Loss)
Recognized loss to seller = $1,500, since R and A are not related party as per section 267.
Fair market value is considered as adjusted basis to buyer. Hence, the adjusted basis for the buyer is $18,500.
(e) Gain or loss to the seller:
= Adjusted basis - Fair market value
= $175,000 - $220,000
= $45,000 (Gain)
Recognized loss to seller:
= $175,000 ÷ 2
= $87,500, since M and K both are related parties as per section 267.
Purchase price of interest is considered as adjusted basis to buyer. Hence, the adjusted basis to buyer is $220,000.
