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 $25,000 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 period, beginning in two years, at $4,000 per year plus market-rate interest.

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).

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. Cs basis in Parcel #1 is $15,000 and Cs basis in Parcel #2 is $8,000. What results to C and X Corporation?

d) There was $5,000 of gain inherent to the inventory transferred by B. If X Corporation later sells the inventory for $10,000, and B sells his stock for $10,000, how many times will that $5,000 of gain be taxed? Is there any justification for this result?