Grant, Pamela, and Thorton agree to go into business together to develop software for use in smart phones. They have elected to conduct their business through a newly-formed corporation. According to the agreement, Grant will contribute intellectual property valued at $100,000 in exchange for 40 shares of the corporations stock (i.e., the stock is worth $100,000) in the corporation. Grant's tax basis in the intellectual property is $10,000. Pamela will contribute cash to the corporation equal to $100,000 in exchange for 40 shares of the corporations stock (i.e., the stock is worth $100,000) in the corporation. Thorton agreed to provide services to the corporation deemed to be worth $50,000 in exchange for 20 shares of the corporations stock (i.e., the stock is worth $50,000) in the corporation. The corporation does not have any outstanding shares.

a. Explain whether this transaction should qualify as tax-free exchange under Code Section 351 and if Grant, Pamela, and Thorton will recognized any gain or loss on this transaction.

b. What is Grant's tax basis in the stock she receives in return for contributing the intellectual property to the corporation and Thortons tax basis in the stock she receives in return for providing services?

c. What is the corporations tax basis in the intellectual property?

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