Taxation of Reorganization & Liquidations

351 Transaction Problem:

Able and Body are unrelated individuals. In September of the present year, they decide to form I Can Too Corporation. Able contributes a building and land with a basis of $35,000 and and a fair market value of $100,000, and a mortgage of $45,000. Body contributes machinery with a basis of $55,000 and a fair market value of $100,000, and the Corporation assumes a loan of $40,000 used for personal reasons by Body. They each receive 1,000 shares of the single class of the corporations par $100 common stock. Assume each share is worth $100

Answer the following questions:

1. Do any or all of the shareholders realize and recognize gain or loss on this transaction?
2. What is Ables adjusted basis in his shares
3. What is Bodys adjusted basis in his shares?
4. What is I Can Toos adjusted basis in the building and land contributed by Able?
5. What is I Can Toos adjust the basis in the machinery contributed by Body?