Problem:
Allie forms Broadbill Corporation by transferring land (basis of $125,000, fair market value of $775,000), which is subject to a mortgage of $375,000. One month prior to incorporating Btroadbill, Allie borrows $100,000 for personal reasons and gives the lender a second mortgage on the land. Broadbill Corporation issues stock worth $300,000 to Allie and assumes the mortgages on the land.
Required:
Question 1: What are the tax consequences to Allie and to Broadbill Corporation?
Question 2: How would the tax consequences to Allie differ if she had not borrowed the $100,000?
Points up in detail clarify all workings.