Seth, Pete, Cara, and Jen form Kingfisher Corporation with the following consideration:

Consideration Transferred

Basis to

Transferor Fair Market

Value Number of Shares

Issued

From Seth$$

Inventory $$30,000$ $$96,00030*$

From Pete$$

Equipment $($$$30,000$ of depreciation taken by Pete in prior years$)45,00099,00030**$

From Cara$$

Proprietary process $15,00090,00030$

From Jen$$

Cash $30,00030,00010$

$*$Seth receives $$6,000$ in cash in addition to the $30$ shares.

$**$Pete receives $$9,000$ in cash in addition to the $30$ shares.

The value of each share of Kingfisher stock is $$3,000.$

If there is no gain or loss, enter $$0$ for the amount.

As to these transactions, provide the following information for parts $($a$)-($l$).$

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a$.$ Seth's recognized gain or loss. Identify the nature of any such gain or loss.

Seth recognizes $fill in the blank $1$f$0$bb$1051$fdf$060\_1$

as

ordinary income

$.$

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Section $351$ provides that gain or loss is not recognized upon the transfer of property to a corporation when certain conditions are met. This provision reflects the principle that gain should not be recognized when a taxpayer's investment has not substantively changed. Questions have arisen concerning what constitutes property for purposes of $351.$ In general, the definition of property is comprehensive.

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b$.$ Seth's basis in the Kingfisher Corporation stock.

$fill in the blank a$60$c$7$ef$71$f$9$d$066\_1$

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Incorrect

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c$.$ Kingfisher Corporation's basis in the inventory.

$fill in the blank $6$ae$8$def$3501$efbf$\_1$

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Incorrect

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d$.$ Pete's recognized gain or loss. Identify the nature of any such gain or loss.

Pete recognizes a

ordinary income

of $fill in the blank $01$ed$11$f$59003003\_2$

$.$

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Partially correct

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e$.$ Pete's basis in the Kingfisher Corporation stock.

$fill in the blank e$33951062$fe$3$fa$2\_1$

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Incorrect

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f$.$ Kingfisher Corporation's basis in the equipment.

$fill in the blank $4$fa$2450$cc$02405$d$\_1$

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Incorrect

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g$.$ Cara's recognized gain or loss.

Cara's has

no gain or loss

of $fill in the blank $11$ba$51$ff$5063$fc$8\_2$

$.$

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Partially correct

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h$.$ Cara's basis in the Kingfisher Corporation stock.

$fill in the blank fb$09$dffc$4016$fd$8\_1$

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Incorrect

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i$.$ Kingfisher Corporation's basis in the proprietary process.

$fill in the blank f$8609$ff$52$ff$703$d$\_1$

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Incorrect

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j$.$ Jen's recognized gain or loss.

Jen has

no gain or loss

of $fill in the blank debffefe$5$f$8$d$018\_2$

on the transfer.

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Partially correct

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k$.$ Jen's basis in the Kingfisher stock.

$fill in the blank caf$9150$ad$041$fd$8\_1$

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Incorrect

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l$.$ During discussions relating to the formation of Kingfisher, Seth mentions that he may be interested in either $(1)$ just selling all of his inventory in the current year for its fair market value of $$96,000$ or $(2)$ proceeding with his involvement in Kingfisher's formation as shown above but followed by a sale of his stock five years later for $$90,000.$ What would be the tax cost of these alternative plans, stated in present value terms?

Assume a discount rate of $6\%.$ The present value factors at $6\%$ are $1\mathrm{.}000$ for year $1$ and $0\mathrm{.}7473$ for year $5.$ Further, assume Seth's marginal income tax rate is $35\%$ and his capital gains rate is $15\%.$

If required, round your answers to the nearest dollar.

The present value of Seth's tax cost associated with the current sale of inventory $($alternative $1)$ for $$96,000$ is $fill in the blank $61$eaa$5084$ff$3$fac$\_1$

The present value of Seth's tax cost associated with the current receipt of $30$ Kingfisher shares and $$6,000$ cash $($alternative $2)$ and the subsequent sale of $30$ Kingfisher shares for $$90,000$ in five years is $fill in the blank $61$eaa$5084$ff$3$fac$\_2$

$.$