On May 5 of the current year (Year 1) Bosco Wong (B), an individual, and Myolie Wu (M), also an individual formed a Corporation (C), a calendar year corporation, by filing articles of incorporation with the secretary of state. On that date (May 5), B transferred 300 shares of stock in X corporation (which represented 1% ownership in X and is a capital asset) with a fair market value (FMV) of $130,000 and an adjusted basis (AB) of $20,000, but subject to a $30,000 liability, to C in exchange for 100 shares of C stock with a FMV of $100,000. C assumed the liability as part of the exchange (meaning C became responsible for paying the $30,000). Also on that date (and in a related transfer) M transferred two capital assets to C: Capital Asset #1 with a fair market value (FMV) of $50,000 and an adjusted basis of $25,000, and Capital Asset #2 with a FMV of $50,000 and an adjusted basis of $100,000 and M received 100 shares of stock (with a FMV of $100,000) in exchange. The following additional transactions occurred in years 1 (the current year) and 2 as indicated.

YEAR 1 (May 5 December 31 )

C Received $5,000 of revenue throughout the year;

C Received a $2,000 dividend from X Corp. On July 1;

C Contributed $1,500 cash to a qualified charity on December 30.

YEAR 2 (January 1 December 31)

C Received $5,000 revenue throughout the year;

C distributed $5,000 cash to B and $5,000 cash to M on March 24; C Received a $2,000 dividend from X Corp. on April 1;

C sold Capital Asset #2 for $60,000 to Philip Lee (an individual unrelated to B, M or C) on July 17;

C Sold 1/2 (150) of its X shares for $25,000 ro John Doe (an individual unrelated to B, M or C) on August 1;

C paid $500 of Federal Tax.

These are the only transactions that occurred during years 1 and 2.

a. What is Cs Taxable Income for year 1? __________ and for year 2? __________

b. What income, gain or loss, if any, does B recognize as a result of exchanging the X stock for C stock on May 5 of year 1?

c. What income, gain or loss, if any does B recognize in Year 2, (including what character) as a result of receiving the $5,000 cash distribution on March 24?

d. What is Ms AB in her shares of C stock at the end of year 2?

e.Could C check the box to be taxed as a partnership?