Joe and Tracey to form Devo Corp., a real estate development company.

Joe will contribute undeveloped real estate ("Blackacre") with a basis of $100,000 and a fair market value of $250,000.

Tracey will contribute another parcel of real estate with a basis of $500,000 and a fair market value of $200,000 plus $50,000 in cash.

Joe and Tracey each receives 50% of the 1,000 authorized common shares of Devo Corp.

A. What are the tax consequences to Joe? To Tracey? To Devo Corp.?

B. What result if Joe's property is encumbered by a $50,000 mortgage and Tracey does not contribute any cash?

C. Tracey tells you that she wants to recognize the $300,000 loss the real estate she contributes. How might she do this?

Question 2:

Same facts as Question 1. Devo Corp. borrows $100,000, so that Devo Corp. has $150,000 cash (i.e., the $50,000 contributed by Tracey and the $100,000 it borrowed). On 6/1/2016, Devo Corp., spends $100,000 in deductible business fees.

A. If on 11/30/206 Devo Corp. makes a distribution to Joe and Tracey of $20,000 (i.e., $10,000 each), what are the tax consequences to Joe and Tracey? Assume no other distributions are made in 2016.

B. Assume that Blackacre decreases in value to $190,000. What if in addition to making the $20,000 distribution on 11/30/2016, on 12/31/2016 Devo Corp., distributes 50% of Blackacre to each of Joe and Tracey?

C. What if instead on distributing Blackacre 50/50 to each of Joe and Tracey, Devo Corp., distributes Blackacre to Joe in complete redemption of his stock in Devo Corp.?

Question 3:

Same facts as Question 1. Assume that no distributions have been made and all that has happened is that the two parcels of land have appreciated. Blackacre is now worth $500,000 and the property contributed by Tracey is worth $450,000 and there is still $50,000 of cash in Devo Corp.'s bank account.

A. After a few years, Ryan offers to buy Devo Corp. for $1,000,000. What are the tax consequences to Joe and Tracey if this is structured as an acquisition of stock.

B. Assume instead that Ryan just wants to buy Blackacre for $500,000. What are the tax consequences to Joe, Tracey and Devo Corp., if Devo Corp. sells Blackacre for $500,000 and then later that same year Devo Corp. makes a cash distribution to Joe and Tracey of $500,000?

C. Same facts as 3.B, except what are the tax consequences if Devo Corp., adopts a plan of liquidation before the sale to Ryan, and Devo Corp. (i) sells Blackacre to Ryan for $500,000 and (ii) distributes the $550,000 cashplusthe property contributed by Tracey (worth $450,000) to Joe and Tracey in complete liquidation?