Quincy transfers $ 825,000 in cash to newly formed Russell Corporation for 100% of Russell 's stock. In the first year of operations, Russell 's taxable income before any payments to Quincy is $ 215,000.

What total amount of taxable income must Quincy and Russell each report if when Russell was formed, Quincy transferred his $ 825,000 to the corporation for $ 475,000 of Russell stock and $ 350,000 in Russell notes. The notes are repayable in five annual installments of $ 70,000 plus 15% annual interest on the unpaid balance. During the current year, Russell gives Quincy $ 70,000 in repayment of the first note plus $ 52,500 interest.