Facts C (S Corporation):

Joe and Sunny intend to enter into a business venture together and decided that an S corporation would be a desirable entity choice for federal income tax purposes. The corporation is named Michigan Inc. (MII). For newly established MII, Joe intends to contribute Property A with fair market value (FMV) of $800 and basis of $300. Sunny intends to contribute cash of $800. Joe and Sunny are equal owners of MII.

1. Provide Joes basis in MII upon contribution (i.e., Year 0) of Property A.
2. Provide Sunnys basis in MII upon contribution (i.e., Year 0) of cash.
3. Provide MIIs basis in Property A and cash immediately after contribution.
4. At the end of Year 1, MII had an operating loss of $500. What would be Joes and Sunnys outside basis at the end of Year 1.
5. Assume at the end of Year 1, MII had no operating income/loss. MII would like to distribute cash to Joe and Sunny and distribute Property A only to Joe. Will this arrangement work? Why? If yes, provide Joes and Sunnys basis in MII at the end of Year 1.

Facts D (S Corporation):

Assume that the facts are the same as noted in Facts C except for the following: Joe intends to contribute Property A with fair market value (FMV) of $800 and basis of $300. At that time of contribution, Property A was encumbered with $300 debt financed from Bank A. Sunny intends to contribute cash of $800. For purposes of this question, Joe and Sunny are equal owners.

6. Provide Joes basis in MII upon contribution (i.e., Year 0) of Property A.
7. Provide Sunnys basis in MII upon contribution (i.e., Year 0) of cash.
8. Provide MIIs basis in Property A and cash immediately after contribution.