In the current year, Mike, Sue, and Fred form Air Corporation. Mike contributes land (a capital asset) having a $75,000 FMV purchased as an investment four years ago for $40,000 in exchange for 75 shares of Air stock. Sue contributes machinery (Sec. 1231 property) purchased four years ago and used in her business in exchange for 75 shares of Air stock. Immediately before the exchange, the machinery had a 185,000 adjusted basis and a 75,000 FMV. Fred contributes services worth $50,000 in exchange for 50 shares of Air stock.

Requirements a. C. e. What is the amount of Mike's recognized gain or loss? b. What is Mike's basis in his Air shares? When does his holding period begin? What is the amount of Sue's recognized gain or loss? d. What is Sue's basis in her Air shares? When does her holding period begin? How much income, if any, does Fred recognize? f. What is Fred's basis in his Air shares? When does his holding period begin? g. What is Air's basis in the land and the machinery? When does its holding period begin? How does Air treat the amount paid to Fred for his services? h. How would your answers to Parts a through g change if Fred instead contributed $7,000 in cash and services worth $43,000 for his 50 shares of Air stock