Joe Stephens formed Sigma Corporation on January 4 of Year 1, and the corporation immediately made an S election effective for that year. In forming the corporation, Joecontributed $50,000 cash in exchange for 100% of Sigma's stock. Shortly thereafter, thecorporation obtained a $75,000 bank loan to assist with operations. Sigma's first two years didnot go as well as expected, with Sigma incurring a $60,000 ordinary loss in Year 1 and a $12,000ordinary loss in Year 2. Moreover, in Year 2, Joe and his wife Marsha divorced. As part of thedivorce settlement, on March 31 of Year 2, Joe gave Marsha 50% of the Sigma stock. In Year 3, Sigma's performance improved, with the corporation earning $40,000 of ordinary income. Joeasks your help in determining the tax consequences of these events, particularly the usage of theS corporation losses. At a minimum, you should consider the following resources: IRC Sec. 1366 Reg. Sec. 1.1366-2