Case:

Eric Wrightconducts adry cleaning business as a sole proprietorship. Thebusiness operatesin abuilding that Eric owns. Last year, Ericmortgaged for $150,000 the building and the landon which the building sits. Heused the money for a down payment on his personal residence and college expensesfor his two children. He now wants toincorporate his business and transfer the building and the mortgage to a new corporation, along with otherassets and some accounts payable. The amount of the unpaid mortgage balance will not exceed Eric's adjusted basis in the land and building at the time he transfers them to the corporation.Eric is aware that Sec. 357(b) could impact the tax consequencesof thetransaction because no bona fide business purpose exists for the mortgage transfer, which theIRS might consider to have been for a tax avoidance purpose. However, Eric refuses to acknowledge this possibility when you confront him. He maintains that many taxpayers play the audit lottery and that, in the event of an audit, invoking this issue could be a bargaining ploy.

Use "AICPA'sStatements on Standards for Tax Services No. 1, Tax Return Positions" (can be found on google)

Required:What information about the transaction must be provided with the transferorandtransferee's tax returnsfor the year in which thetransfer takes place? Using AICPA'sStatements on Standards for Tax Services No. 1, Tax Return Positions,What are theethicalissues?Should the taxpractitioner act as an advocate for the client?Shouldthepractitioner sign the return?