A organized X corporation by transferring the following: inventory with a basis of $20,000 and a fair market value of $10,000 and unimproved land held for several years with a basis of $20,000, a fair market value of $40,000 and subject to a recourse debt of $30,000. In return, A received 20 shares of X stock (fair market value, $20,000) and X took the land subject to the debt.

(1) Assuming no application of Section 357 (b), how much gain, if any, does A recognize and what is As basis and holding period in the stock?

(2) What result in (a), above, if the basis of the land were only $5,000?

(3) In (2), above, what is the character of AS recognized gain under Reg. 1.357-2(b)? Does this result make sense? How else might the character of As gain be determined?

(4) In (2), above, what is X Corporations basis in the properties received from A?

(5) What might A have done to avoid the recognition of gain in (2), above?

U.S. Taxation