a) Four business partners: John, Mary, Ben, Dean want to create a corporation. The new corporation will be called: ABC. John will give the corporation inventory with an adjusted basis of $5000 and FMV of $15,000. He will also contribute land with a basis of $80,000 and FMV of $60,0000. He will also contribute a machine with a basis of $5000 and FMV of $25,000. In return the corporation will give him 100 stocks and $5000. Mary will contribute $100,000 cash for 100 shares. Ben will give his stamp collection with a basis of $125,000 and a FMV of $50,000 and in return he will get 50 stock. Lastly, Dean has offered his cleaning service with a value of $50,000 for 50 shares. Discuss all tax consequences of the formation of this corporation.

b) The corporation was successfully created and has an E&P of $600,000. In February, John contributes $10,000 to the corporation and Mary contributes $10,000 of her own. In May 30th, ABC redeems 10 shares from Ben for $25,000 and in August 26, ABC redeems all of Dean’s shares for $125,000. Dean plans to return as a consultant and help his father John in the corporation. Discuss the tax consequences.