Martin must recognize a gain of ________ and has a stock basis of ________:
Martin operates a law practice as a sole proprietorship using the cash method of accounting. Martin incorporates the law practice and transfers the following items to a new, solely owned corporation.
A) $0; $30,000
B) $0; $40,000
C) $20,000; $30,000
D) $20,000; $40,000
B) $0; $40,000
The accounts payable are not considered liabilities under Sec. 357(c) since the payment of the payables gives rise to a deduction. Stock basis equals: cash basis $10,000 plus equipment basis $80,000, less liability transferred $50,000 = $40,000.
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