Several years ago, your client, Brooks Robertson, started an office cleaning service. His business was very successful, owing much to his legacy as the greatest defensive third baseman in major league history and his nickname, "The Human Vacuum Cleaner." Brooks operated his business as a sole proprietorship and used the cash method of accounting. Brooks was advised by his attorney that it is too risky to operate his business as a sole proprietorship and that he should incorporate to limit his liability. Brooks has come to you for advice on the tax implications of incorporation. His balance sheet is presented below. Under the terms of the incorporation, Brooks would transfer the assets to the corporation in return for 100 percent of the company's common stock. The corporation would also assume the company's liabilities (payables and mortgage). Assets Accounts receivable Cleaning equipment (net) Building Land Total assets Liabilities Accounts payable Salaries payable Mortgage on land and building Total liabilities Balance Sheet Adjusted tax basis $ 0 45,000 FMV $ 25,000 40,000 90,000 95,000 45,000 70,000 $ 180,000 $ 230,000 $ 0 0 $ 30,000 55,000 $ 55,000 25,000 55,000 $ 110,000