Fang Binbing (B) and Zou We (Z), two individuals, formed X Corporation (X) on February 1, Year 1 (the date on which X, a calendar-year corporation began doing business). On that date, B, who was really good at accounting and taxes, contributed accounting services necessary to the organization (creation) of X Corp., valued at $54,500 and property with a fair market value (FMV) of $45,500 and adjusted basis of $20,000 to X, in exchange for 100 shares of X stock. On that same date, Z contributed a capital asset (CA) to X with an FMV of $110,000 and AB $7,000, but subject to the liability of $10,000 which had a legitimate business purpose, which X assumed, in exchange for 100 shares of X stock. (The 100 shares of X stock were valued at $100,000). During Year 1: During Year 1: (i) X received $50,000 revenue and (ii) purchased a qualified Section 179 asset for $40,000. During Year 2: During Year 2: (i) X received $30,000 revenue and (ii) distributed $20,000 cash to each of B and Z on July 1. During Year 3: During Year 3: (i) Z sold her shares to D for $95,000, (ii) X received $40,000 revenue, (iii) X sold CA for $58,000, and X distributed $30,000 cash to Z and B on May 5 and distributed $30,000 cash to D and B on October 31.

1.Mat is X Taxable Income in Year 1? 2.Mat is X Current Year E&P in Year 2? 3.Mat income, gain or loss, if any, does Z recognize in Year 2? 4.Mat income, gain or loss, if any, does B recognize in Year 3? 5.Mat is XAccumulated E&P at the beginning of Year 4?