Amy owns land, fair market of 81,000, in which she has an adjusted basis of 70,000. She transfers that land to Newco in exchange for 81 Newco common shares. Bob transfers his services with a value of 19,000 to Newco in exchange for 19 shares of Newco stock.

Assume the same facts as above. Also assume that in year 1, Newco has taxable income of 100,000 and no distributions. Further, in year 2, Newco has taxable income of 150,000 which does not reflect non-deductible expenses for meals and entertainment of 20,000. On October 20 of year 2, Newco distributes cash of 162,000 to Amy and 38,000 to Bob. What are all of the consequences of these distributions to all parties? (maximum 1 page typewritten)