A. B. C, D and E, all individuals, form X Corporation to engage in a manufacturing business. X issues 100 shares of common stock. A transfers $95,000 cash for 25 shares; B transfers inventory with a value of $10,000 and a basis of $5,000 for 10 shares; C transfers unimproved land with a value of $20,000 and a basis of $25,000 for 20 shares; D transfers equipment with a basis of $5,000 and a value of $25,000 (prior depreciation taken was $20,000 ) for 25 shares; and E transfers a \$20,000 (face amount and value) installment note for 20 shares. E received the note in exchange for land with a $2,000 basis that he sold last year. The note is payable over a five-year (a) What are the tax consequences (gain or loss recognized, basis and holding period in the stock received) to each of the transferors? As to E, see I.R.C. 453B(a); Reg. 1.453-9(c)(2); Prop. Reg. $1.453B1(c). (b) What are the tax consequences (gain recognized, basis and holding period in each of the assets received) to X Corporation? (c) Assume all the same facts except that C transfers two parcels of unimproved land (Parcel #1 and Parcel #2), each with a value of $10,000. C's basis in Parcel #1 is $15,000 and C's basis in Parcel #2 is $8,000. What result to C and X Corporation? (d) There was $5,000 of gain inherent in the inventory transferred by B. If X Corporation later sells the inventory for $10,000, and A. B. C, D and E, all individuals, form X Corporation to engage in a manufacturing business. X issues 100 shares of common stock. A transfers $95,000 cash for 25 shares; B transfers inventory with a value of $10,000 and a basis of $5,000 for 10 shares; C transfers unimproved land with a value of $20,000 and a basis of $25,000 for 20 shares; D transfers equipment with a basis of $5,000 and a value of $25,000 (prior depreciation taken was $20,000 ) for 25 shares; and E transfers a \$20,000 (face amount and value) installment note for 20 shares. E received the note in exchange for land with a $2,000 basis that he sold last year. The note is payable over a five-year (a) What are the tax consequences (gain or loss recognized, basis and holding period in the stock received) to each of the transferors? As to E, see I.R.C. 453B(a); Reg. 1.453-9(c)(2); Prop. Reg. $1.453B1(c). (b) What are the tax consequences (gain recognized, basis and holding period in each of the assets received) to X Corporation? (c) Assume all the same facts except that C transfers two parcels of unimproved land (Parcel #1 and Parcel #2), each with a value of $10,000. C's basis in Parcel #1 is $15,000 and C's basis in Parcel #2 is $8,000. What result to C and X Corporation? (d) There was $5,000 of gain inherent in the inventory transferred by B. If X Corporation later sells the inventory for $10,000, and
