On January 1, 2022 Tommy and Ronnie formed Phillee Corporation, P Corp, a company devoted to making products for giveaways at Phillies baseball games.

Tommy transfers inventory (basis of $60,000 and fair market value of $220,000) for 50% of the stock in Phillee Corp.

Ronnie also gets 50% of the P Corp stock when he does two things. Ronnie transfers production machinery (which a basis of $100,000 and a fair market value of $170,000). Ronnie also wants to get paid for the services he supplied in helping set up the company and he will serve as GM of P Corp for the first 6 months. He figures that these services are worth $50,000, and part of the P Corp stock will cover these items.

1. What are the tax consequences to Tommy? Does he recognize any gain on the transfer of inventory for stock? What is his basis in the P Corp stock?

2. What are the tax consequences to Ronnie? Does he recognize any gain, or income, when he receives the P Corp stock? What is his basis in the P Corp stock?

3. What are the consequences to P Corp? Does P Corp recognize gain when it receives the inventory and production machinery? What basis does it have in the inventory and production machinery received? Does P Corp have any other tax deduction(s) as a consequence of this deal?