THE TRANSFEREE CORPORATIONS ASSUMPTION OF DEBT IN A GOOD 351 EXCHANGE

Consider the facts with the following alternative modifications:

1. A incurred the debt one week prior to transferring the land to X corporation; he used the loan proceeds to take his wife on a luxurious round-trip cruise from New York to Southampton aboard the Queen Mary 2.

2. A incurred the debt during the previous year and used the loan proceeds to pay routine operating expenses during the pandemic.

Answer the following questions under each alternative (support your answer with specific reference to relevant provisions of the Code and Treasury Regulations):

1. What is As (i)amount realized, (ii)realized gain & (iii)recognized gain in this exchange? (6 points)

2. What effect, if any would X Corporations assumption of the debt have on the application of 351 to As transfer? Explain your answer. (8 points)

3. What basis would A have in his X stock? (2 points)

4. What basis would X Corporation have in the land? (2 points)

5. Logically justify your answers to questions 3 and 4. (4 points)