Question

This year, John, Meg and Karen form Frost corporation. John contributes land purchased as an investment four years ago for $15,000 that has a $30,000 FMV in exchange for 30 shares of Frost stock. Meg contributes machinery (sec. 1231 property) purchased four years ago and used in her business having a $35,000 adjusted basis and a $30,000 FMV in exchange for 30 shares of Frost stock. Karen contributes services worth $20,000 in exchange for 20 shares of Frost stock. What is karen's basis in her frost shares? when does her holding period begin?

Answer 1

Karen's basis in her Frost shares is $20,000, and her holding period begins on the date she contributed the services.

Step-by-step explanation:

Karen's basis in her Frost shares is determined by the value of the services she contributed. She contributed services worth $20,000, so her basis in the shares is also $20,000.

Her holding period for the Frost shares begins on the date she contributed the services.