B organized Y Corporation and transferred a building with a basis of $100,000 and a fair market value of $400,000. The building was subject to a first mortgage of $80,000 which was incurred two years ago for valid business reasons. Two weeks before the incorporation of Y, B borrowed $10,000 for personal purposes and secured the loan with a second mortgage on the building. In exchange for the building Y Corporation will issue $310,000 of Y common stock to B and will take the building subject to the mortgages.

b) What result if B did not borrow the additional $10,000 and, instead, Y Corporation borrowed $10,000 from a bank and gave $310,000 of Y common stock, $10,000 cash and will take the building subject to the $80,000 first mortgage?

c) Is the difference in results between (a) and (b), above, justified?

d) When might there be legitimate business reasons for a corporation assuming a transferors debt or taking property subject to debt?