Incorporating a Sole Proprietorship. Tom incorporates his sole proprietorship as Total Corporation and transfers its assets to Total in exchange for all 100 shares of Total stock and four $10,000 interest-bearing notes. The stock has a $125,000 FMV. The notes mature consecutively on the first four anniversaries of the incorporation date. The assets transferred are as follows:
Assets Adjusted Basis FMV
Cash $ 5,000 $ 5,000
Equipment $130,000
Minus: Accumulated
depreciation ) (70,000) 60,000 90,000
Building $100,000
Minus: Accumulated
depreciation ) (49,000) 51,000 40,000
Land 24,000 30,000
Total 140,000 165,000
a. What are the amounts and character of Tom's recognized gains or losses?
b. What is Tom's basis in the Total stock and notes?
c. What is Total's basis in the property received from Tom?