In the current year, John, Tara, and Sean form Corporation. John contributes land (a capital asset) having a $120,000 FMV purchased as an investment four years ago for $10,000 in exchange for 120 shares of Ash stock. Tara contributes machinery (Sec. 1231 property) purchased four years ago and used in her business in exchange for 120 shares of Ash stock. Immediately before the exchange, the machinery had a $130,000 adjusted basis and a 120,000 FMV. Sean contributes services worth $70,000 in exchange for 70 shares of Ash stock. a.What is the amount of John's recognized gain or loss? b.What is John's basis in his Ash shares? When does his holding period begin? c.What is the amount of Tara's recognized gain or loss? d.What is Tara's basis in her Ash shares? When does her holding period begin? e.How much income, if any, does Sean recognize? f.What is Sean's basis in his Ash shares? When does his holding period begin? g.What is Ash's basis in the land and the machinery? When does its holding period begin? How does Ash treat the amount paid to Sean for his services? h.How would your answers to Parts a through g change if instead Sean contributed $7,000 in cash and services worth $63,000 for his 70 shares of Ash stock?
In the current year, John, Tara, and Sean form Corporation. John contributes land (a capital asset) having a $120,000 FMV purchased as an investment four years ago for $10,000 in exchange for 120 shares of Ash stock. Tara contributes machinery (Sec. 1231 property) purchased four years ago and used in her business in exchange for 120 shares of Ash stock. Immediately before the exchange, the machinery had a $130,000 adjusted basis and a 120,000 FMV. Sean contributes services worth $70,000 in exchange for 70 shares of Ash stock.
a.What is the amount of John's recognized gain or loss?
b.What is John's basis in his Ash shares? When does his holding period begin?
c.What is the amount of Tara's recognized gain or loss?
d.What is Tara's basis in her Ash shares? When does her holding period begin?
e.How much income, if any, does Sean recognize?
f.What is Sean's basis in his Ash shares? When does his holding period begin?
g.What is Ash's basis in the land and the machinery? When does its holding period begin? How does Ash treat the amount paid to Sean for his services?
h.How would your answers to Parts a through g change if instead Sean contributed $7,000 in cash and services worth
$63,000 for his 70 shares of Ash stock?
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