On January 1, 20X1, Adams and Ballard form Entity X. Adams contributes Stock A with a basis of $200,000 and a value of $100,000, and Ballard contributes cash of $100,000. On January 31, 20X1 Stock A is sold for $200,000.

Questions:

a) What are the tax consequences to Adams and Ballard of the sale of Stock A if Entity X is a limited liability company?

b) What are the tax consequences to Adams and Ballard of the sale of Stock A if Entity X is an S-corporation?