A taxpayer operates an accounting firm as a sole proprietorship. The taxpayer wants limited liability protection in his operations as an accountant, as well as, liability protection from any slip and falls that would occur in his office. The only assets that the sole proprietorship has is an accountants receivable worth $50,000 and an interest in a real estate partnership that is used as collateral for a loan the taxpayer just received from Bank of America so that he could pay his current year income taxes. The fair market value of the real estate partnership interest is $50,000 and the loan is for $20,000. The taxpayer comes to your office and asks you the following questions:

1. Whether, for tax purposes, the taxpayer can contribute the assets held by the sole proprietorship to a corporation tax free? If so, explain your answer. If not, explain your answer.