Reference no: EM132213205
Question: In the current year, Luke, Sue, and Chris form Elm Corporation. Luke contributes land (a capital asset) having a $90,000 FMV purchased as an investment four years ago for $15,500 in exchange for 90 shares of Elm stock. Sue contributes machinery (Sec. 1231 property) purchased four years ago and used in her business in exchange for 90 shares of Elm stock. Immediately before the exchange, the machinery had a $130,000 adjusted basis and a 90,000 FMV. Chris contributes services worth $50,000 in exchange for 50 shares of Elm stock.
a. What is the amount of Luke's recognized gain or loss?
b. What is Luke's basis in his Elm shares? When does his holding period begin?
c. What is the amount of Sue's recognized gain or loss?
d. What is Sue's basis in her Elm shares? When does her holding period begin?
e. How much income, if any, does Chris recognize?
f. What is Chris's basis in his Elm shares? When does his holding period begin?
g. What is Elm's basis in the land and the machinery? When does its holding period begin? How does Elm treat the amount paid to Chris for his services?
h. How would your answers to Parts a through g change if Chris instead contributed $10,000 in cash and services worth $40,000 for his 50 shares of Elm stock?
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