Joe ,Karen and Larry form Gray Corporation. Joe contributes land (a capital assest) having an $8000 adjusted basis and a $15000 FMV to Gray in exchange for Gray 10 year notes having a $15000 face value. Karen contributes equipment (sec. 1231 property) having an $18000 adjusted basis and a $25000 FMV for 50 shares of Gary stock. She previously claimed $10000 in depreciation on the equipment. Larry contributes $25000 ok cash for 50 shares of Gray Stock.

a. What are the amounts and characters of Joe's, Karen's and Larry's recognized gains or loses?

b. What basis do Joe, Karen and Larry take in the stock or notes they receive.

c. What basis does Gary take in the land and equipment? What happens to the $10,000 of depreciation recapture potential of the equipment?