Dr. Erica Press(herein called petitioner) was a legal resident of Portland, Oregon, at the time she filed her petition in this proceeding. She and her husband, Eric, filed their joint Federal income tax return for the year 2017 with the district director of internal revenue at Portland, Oregon. Petitioner and Eric (hereinafter referred to collectively as the Press) were calendar year accrual basis taxpayers.

[55 T.C. 663]

Prior to February 13, 2017, the Press conducted a lumber-trucking business as a sole proprietorship. On February 13, 2017, the business was transferred to a newly formed corporation, Press Trucking Co., Inc. (hereinafter referred to as the Press Corp.).

The Press transferred all of the assets of the sole proprietorship to the Press Corp. in exchange solely for 99 shares of the outstanding stock of the corporation and the assumption by the corporation of all of the liabilities pertaining to the sole proprietorship. At all relevant times, herein the corporation had 100 shares of no-par common stock outstanding and this constituted the only class of stock issued by the corporation. One share of stock was issued to Mrs. Nicole Stilianos, the corporation's bookkeeper.

The assets transferred from the sole proprietorship to the Press corporation consisted solely of depreciable trucks and trailers used in the business.

All liabilities assumed by the Press Corp. were subsequently paid by the corporation with its own funds. The accounts payable assumed ($24,420.14) were liabilities incurred on open account. All the remaining liabilities assumed ($47,591.65) were encumbrances on the trucks and trailers transferred on the exchange.

At the time of the transfer on February 13, 2017, the liabilities of the business assumed by the Press Corp. exceeded the adjusted basis of the assets transferred to it by $9,229.59. In order that the assets shown on the balance sheet of the corporation would exceed the liabilities assumed, the Press agreed to make up this difference by executing a personal promissory note payable to the corporation with a face amount of $10,229.59, creating a capital stock account of $1,000. Prepare a memo to the client file describing the results of your research.

Partial List of aids:

351

357(c)

Peter Raich, 46 T.C. 604, 608 (1966) and Peracchi v. Commissioner

143 F.3d 487 (9th Cir. 1998) and Golsen v. Commissioner of Internal Revenue, 54 T.C. 742 (1970),aff'd on other grounds, 445 F.2d 985 (10th Cir.1971), cert. denied, 404 U.S. 940 (1971)

The format of your answer should be as follows:

Issue:

Facts:

Authority:

Analysis and discussion