In early 2020, James, Inc. announced its intention to construct a manufacturing facility in the Shenandoah Valley. To persuade James, Inc. to locate the facility in Burton County, the county government contributed a six-acre tract of undeveloped county land to the corporation. The appraised FMV of the land at the date of the contribution was $280,000. Soon after accepting the contribution, James, Inc. paid $3,300 to an attorney to do a title search to make sure that it had uncontested ownership of the land. James also paid $12,900 for a survey and site map of the six acres and $1,360 for two water wells drilled on the land. Did James recognize income because of the receipt of the land? What is the proper tax treatment of James’ $17,560 expenditure with respect to the land? In 2021, James’s attorney discovered that the estate of Elsa Reynolds claimed title to the six acres and was preparing to file suit in Virginia state court to regain ownership and possession. The attorney advised James that the estate’s claim appeared valid and would be upheld. Consequently, James informed Burton County that it was renouncing all claim to the land and would build its new manufacturing facility 200 miles away in Rockingham County. Did James recognize a loss when it renounced its claim to the land?
In early 2020, James, Inc. announced its intention to construct a manufacturing facility in the
Shenandoah Valley. To persuade James, Inc. to locate the facility in Burton County, the county
government contributed a six-acre tract of undeveloped county land to the corporation. The appraised
FMV of the land at the date of the contribution was $280,000. Soon after accepting the contribution,
James, Inc. paid $3,300 to an attorney to do a title search to make sure that it had uncontested
ownership of the land. James also paid $12,900 for a survey and site map of the six acres and $1,360 for
two water wells drilled on the land. Did James recognize income because of the receipt of the land?
What is the proper tax treatment of James’ $17,560 expenditure with respect to the land?
In 2021, James’s attorney discovered that the estate of Elsa Reynolds claimed title to the six acres and
was preparing to file suit in Virginia state court to regain ownership and possession. The attorney
advised James that the estate’s claim appeared valid and would be upheld. Consequently, James
informed Burton County that it was renouncing all claim to the land and would build its new
manufacturing facility 200 miles away in Rockingham County. Did James recognize a loss when it
renounced its claim to the land?
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