Tia owns 2,000 shares of Bass Corporation common stock with an $80,000 basis. Bass distributes a nontaxable preferred stock dividend. When the preferred stock is distributed, it has an FMV of $60,000 and the FMV of the 2,000 common stock shares is $180,000. The basis of the preferred stock is
A) $0.
B) $20,000.
C) $60,000.
D) $80,000.
B) $20,000.
[$60,000 (FMV)/$240,000 (total FMV)] × $80,000 (basis) = $20,000. Basis is allocated based on relative FMVs.
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