Aubrey Newman transferred two items of property to N corporation, in return for 800 shares of N corporation (which had only 150 shares outstanding prior to Aubrey's transfer). One item she transferred had an adjusted basis of $10,000 and fair market value of $15,000 and was subject to an $8,000 liability. The second item had an adjusted basis of $2,000 and a fair market value of $5,000 and was subject to a $3,000 liability. In return, she received the 800 shares of stock with a fair market value of $8,000 plus $2,000 in cash. Please address the following: 1 Is this exchange taxable to Aubrey and N corporation? Why or why not? 2 What is the amount of gain (if any) that Aubrey must recognize on this ex- change? 3 What is her basis in the N corporation stock she receives? 4 What is the basis of N corporation in the assets it receives in the transfer? 5 How would your answer differ if Aubrey performed services (instead of transferring property) in return for the shares of N corporation? 2- Cotte Inc. has three shareholders, Phil, Bill, and Hill. Each shareholder owns 100 shares of common stock. On July 1 of this year, Cotte Inc. redeemed 30 shares from each share- holder. In return, each shareholder received $10,000. Phil acquired his shares three years ago and his adjusted ba- sis in his 100 shares was $3,000 at the time of the redemption. Cotte has $100,000 of accumulated E&P as of the end of the prior year, and anticipates earning a further $20,000 in E&P in the current year. Please address the following: 1 What are the federal tax consequences to Cotte, Inc. and Phil arising from this distribution? 2 Would your answer to 1. change if the reason Cotte Inc. redeemed the shares was because it sold one of its businesses it actively had been con- ducting since 1990? 3 Would your answer to 1. change if the only transaction was a redemption of 60 of Phil's shares, while Bill and Hill continued to hold their original 100 shares? 4 Would your answer to 3. change if Bill, Phil, and Hill were siblings? 3 - At the beginning of the year, Jenny, Inc. (a corporation for tax purposes) had a negative $15,000 in E&P. During the year, the company had $5,000 in profits. On July 1, the company distributed property with an adjusted basis of $50,000 and a fair market value of $40,000 to Jenny (an individual), the sole shareholder of the corporation. It was the only distribution that the company made during the year. Jenny's stock in the company had a fair market value of $50,000 and an adjusted basis of $20,000. Please address the following: 1 What is the amount of the distribution to Jenny? 2 What are the federal tax consequences to Jenny of the distribution? 3 What are the federal tax consequences to Jenny, Inc. of the distribution? 4 What alternative transaction would have given Jenny and Jenny Inc.a bet- ter result here?