B is corrent. The requirement is to determine the tax basis of the land to X Corp. that was received at the time of its incorporation. Sec. 351 applies to the formation of X Corp., because both A and B transferred property to X Corp. in exchange for stock, and in the aggregate owned at least 80% of X Corp. after the exchange. This means that B’s realized gain on the transfer of the land of $70,000 — $40,000 = $30,000 will be recognized only to the extent of the $20,000 cash boot that B received. This is important because a transferee corporation’s basis for property acquired in a Sec. 351 transaction is equal to the transferor’s basis, increased by any gain recognized by the transferor. Here, X Corp.’s basis for the land acquired from B will be the same as B’s basis of $40,000 increased by the $20,000 of gain recognized by B, a total of $60,000.
A is incorrect. Its basis is the same as B’s basis increased by the amount of gain recognized by B.
C is incorrect. Its basis is the same as B’s basis increased by the amount of gain recognized by B.
D is incorrect. Its basis is the same as B’s basis increased by the amount of gain recognized by B.
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