27. Tom and Gail form Owl Corporation with the following consideration:
Consideration Transferred
Basis to Transferor Fair Market Value Number of Shares Issued
From Tom-
Cash $ 50,000 $ 50,000
Installment note 240,000 350,000 40
From Gail-
Inventory 60,000 50,000
Equipment 125,000 250,000
Patentable invention 15,000 300,000 60
The installment note has a face amount of $350,000 and was acquired last year from the sale of land held for investment purposes (adjusted basis of $240,000). As to these transactions, provide the following information:
o a.Tom's recognized gain or loss.
o b.Tom's basis in the Owl Corporation stock.
o c.Owl Corporation's basis in the installment note.
o d.Gail's recognized gain or loss.
o e.Gail's basis in the Owl Corporation stock.
o f.Owl Corporation's basis in the inventory, equipment, and the patentable invention.
o g.How would your answers to the preceding questions change if Tom received common stock and Gail received preferred stock?
o h.How would your answers change if Gail was a partnership?
38. 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 Broadbill, 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.
o a.What are the tax consequences to Allie and to Broadbill Corporation?
o b.How would the tax consequences to Allie differ if she had not borrowed the $100,000?