Art, an Unmarried Individual, Transfers Property (Basis of $130,000 and Fair

question 36

Multiple Choice

Art, an unmarried individual, transfers property (basis of $130,000 and fair market value of $120,000) to Condor Corporation in exchange for §1244 stock. The transfer qualifies as a nontaxable exchange under § 351. Because the property is loss property, Condor takes a basis in the property of $120,000. Five years later, Art sells the Condor stock for $50,000. With respect to the sale, Art has:

• A) An ordinary loss of $80,000.
• B) An ordinary loss of $70,000 and a capital loss of $10,000.
• C) A capital loss of $80,000.
• D) A capital loss of $30,000 and an ordinary loss of $50,000.
• E) None of the above.

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Definitions:

Fixed Expenses

Costs that do not change with the level of production or sales volume, such as rent and salaries.

Variable Expenses

Expenses that vary directly with the level of production or sales volume, such as raw materials and direct labor costs.

Net Income

The profit of a company after all expenses, taxes, and costs have been subtracted from total revenue.

Total Contribution Margin

The difference between total sales revenue and total variable costs, representing the amount available to cover fixed expenses and generate profit.