Assumptions: Use a flat corporate tax rate of 21% for all problems. Assume a tax rate of 15% for all dividends and capital gains. Assume there is no Alternative Minimum Tax for these problems. Assume that all entities are US domestic corporations, taxed under Subchapter C of the IRC unless otherwise noted. the internal revenue code.

QUESTION

Charlie, Lucy and Pattie form the Peppermint Corporation.Charlie contributes $10,000 cash in return for

10 shares.Lucy contributes property with a basis of $10,000 and a fair market value of $40,000 in

return for 40 shares, and Pattie contributes property with a basis of $80,000 and a fair market value of $50,000

in return for 50 shares.Lucy purchased the property 10 years ago, and Pattie purchased the property

2 months ago.

Questions:

A What are the tax consequences to Lucy as a result of this transaction?

B What are the tax consequences to Pattie as a result of this transaction?

C What are the tax consequences to Peppermint Corporation as a result of this transaction?

D Pattie comes to you for advice prior to signing the agreement to contribute the property.

What do you tell her?Explain your answer.