On February 1 of year 1, Richard, Mike, Patrick, and Sean form Brothers Corp and transfer the following items: Property Transferred Transferor Asset Basis to Transferor FMV Number of Common Shares Issued Richard Land 27000 40000 600 Building 28000 80000 Mortgage on Land and Building 70000 70000 Mike Machines 25000 40000 400 Patrick Truck 15000 5000 50 Sean Legal Services 0 15000 150 Richard purchased the building and land several years ago, $40,000 for the building, and $22,000 for the land. Depreciation has been claimed using the straight line method. In addition to the machines, Mike received a note from Brothers corp. due in 3 years for $10,000 at the market interest rate. Mike originally purchased the machines 3 years ago for $50,000. In addition to the truck, Patrick received a cash payment of $10,000. Patrickâs truck is 2 years old with an original price of $25,000.
(a) Does the transaction meet the requirements of section 351?
(b) What are the amounts of the gains or losses recognized by Richard, Mike, Patrick, Sean, and Brothers?
(c) What is each shareholderâs basis in their Brothers stock? When does the holding period for the stock begin?
(d) What is Brothersâ basis in its property and services? When does the holding period for each property begin? List each asset separately. Read the scenario and respond to the questions. Support your answers with calculations, as needed. Show your work.