Brad Forms Vott Corporation by Contributing Equipment, Which Has a Basis

question 121

Multiple Choice

Brad forms Vott Corporation by contributing equipment, which has a basis of $50,000 and an FMV of $40,000 in exchange for Vott stock. Brad also contributes $5,000 in cash. If the transaction meets the Sec. 351 control and ownership tests, what are the tax consequences to Brad?

• A) He recognizes a $10,000 loss.
• B) He recognizes a $5,000 gain and a $10,000 loss.
• C) He recognizes neither a gain nor a loss.
• D) He recognizes a $5,000 loss.

---

Definitions:

Contractual Obligations

Duties that are legally required to be performed under the terms of a contract.

Foreseeable Loss

Losses that could have been anticipated or predicted as a consequence of an action or inaction, relevant in determining liability.

Non Est Factum

A defense in contract law where a party claims they were mistaken about the nature of the document signed, not merely its terms.

Caveat Emptor

A Latin phrase meaning "let the buyer beware," placing the responsibility on the buyer to perform due diligence before making a purchase.