LO.2, 3, 4 Allie forms Blue Corporation by transferring land with a basis of $125,000(fair market value of $775,000). The land is subject to a mortgage of $375,000. One month prior to incorporating Blue, Allie had borrowed $100,000 for personal purposes and had given the lender a second mortgage on the land. Blue Corporation issues stock worth

$300,000 to Allie and assumes both mortgages on the land.

a. What are the tax consequences to Allie and to Blue Corporation?

b. How would the tax consequences to Allie differ if she had not transferred the second mortgage of $100,000?