LO.1 Michael Robertson (1635 Maple Street, Syracuse, NY 13201) exchanges property

(basis of $200,000 and fair market value of $850,000) for 75% of the stock of Red Corporation.

The other 25% is owned by Sarah Mitchell, who acquired her stock several years ago. You represent Michael, who asks whether he must report gain on the transfer. Prepare a letter to Michael and a memorandum for the tax files documenting your response.