Assume the following:

1. Individuals are subject to a flat 40% tax on Ordinary Income and a flat 20% tax on Capital Gains
2. Tax Depreciation is assumed to be straight line, subject to the half-year convention, all property is depreciable over 10 years. Assume tax depreciation and E&P are the same.
3. The installment method of accounting is available for all property.
4. Interest begins to accrue on February 12, 2020
5. Depreciation begins when the property is placed in service, which is February 12, 2020
6. Corporation elects to have a calendar year ending December 31^st.
7. Answer as completely and accurately as possible DO YOUR BEST. You will need to make certain additional assumptions; be sure you explain WHY you made the assumption.
8. If you assume be sure to carry that assumption and impact of such through the remaining parts of the mid-term.

On February 11, 2019, Brushy Mountain Corporation was formed as a C corporation for the purposes of manufacturing wood products. The following Property was contributed to the corporation in exchange for the stock and other property as indicated below:

1. Alicia, an individual, contributed land with an adjusted basis of $800,000 and a Fair Market Value of $1,500,000. Alicia had acquired the land in 1997 after the passing of her grandfather. In exchange for her property, Alicia received 1,500 shares of common voting stock.

2. Thomas, an individual; contributed milling equipment with an adjusted basis of $3,000,000 and a Fair Market Value of $2,000,000. The Land was subject to a liability in the amount of $500,000 that Brushy Mountain Corporation assumed in the transaction. Thomas has acquired the equipment in 2017 and used the equipment in his carpentry trade. In exchange for his equipment, Thomas received 1,500 shares of Series A non-voting preferred stock. The preferred stock had a cumulative dividend rate of 10%.

3. David, an individual, contributed, 400 tons of hardwood trees and 600 tons of pine trees. David harvested the trees from his tree farm in December of 2018. David was in the business of Tree Farming and the trees were inventory in his business. The hardwood trees had an adjusted basis of $100,000 and a fair market value of $600,000. The pine trees had an adjusted basis of $400,000, however due to the great Pine Tree blight, the pine trees had a fair market value of $300,000. David received cash in the amount of $300,000 and 600 shares of voting common stock.

4. Rachilla, an individual, contributed a warehouse with an adjusted basis of $100,000 and a fair market value of $200,000. Rachilla acquired the warehouse for her existing business in October of 2018. Rachilla also contributed accounting, tax and managerial services for which the Brushy Mountain Corporation and Rachilla agreed to be valued at $2,000,000. Rachilla received 2,000 shares of voting common stock and a note payable for $200,000. The note payable had adequate stated interest of 5% per year and was payable in a lump sum on February 12, 2021.

5. Kataland Inc.; contributed various chainsaws with an adjusted basis of $0 and a fair market value of $150,000 in exchange for 150 shares of Series B non-voting preferred stock with a cumulative 10% dividend. The series B preferred stock was mandatorily callable for its par value of $1,000 in 2029. The chainsaws were acquired by Kataland in 2016.

6. MRG, LP. operated a lumber distribution center since 1999. MRG contributed accounts receivable of $1,000,000 and accounts payable of $500,000. MRG was a cash basis taxpayer. MRG received 500 shares of voting common stock. MRG LP was owned by 2 individuals, Fred and Maryann. Fred and Maryann retired to the Dominican Republic but are US citizens. The accounts payable related to salaries, business cell phone expenses, and utilities.

Explain and calculate all federal income tax consequences of the formation to both the shareholders and the Corporation.