On March 1 of the current year, Ann, Bill, Cathy and Donform AlphabetCorporation and transfer the following items:

Transferor Asset Adjusted Basis to transferor Fair Market Value # of shares

Ann Land $15,000 $30,000

Building $20,000 $90,000

Mortgage on the land $70,000 $70,000 500

and building

Bob Equipment $23,000 $45,000 300

Cathy Vehicle $20,000 $15,000 150

Don Consulting services $ 0 $5,000 50

Ann purchased the building for $25,000 several years ago and has claimed a depreciation on the building. In addition to 300 shares, Bob also receives a note for $ 5,000. Bob bought the equipment for $50,000 three years ago.

a.What are the consequences to the corporation and each of the shareholders as a consequence of these transfers? What advice do you have for the individuals?

b.Assume the same facts above except Don provides consulting services worth $40,000 for 400 shares. Does your response change? What advice do you have for the individuals?