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Fed Tax

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Locust Corp desires to set up a distribution facility in a southern state. After consideration negotiations with a small town in Alabama, Locust accepts the following offer: land (fair market value of $3 million) and cash of $1 million.

a) How much gain, if any, must Locust Corp recognize?

b) What basis will Locust Corp have in land?

c) Within one year of the contribution, Locust constructs a building for $800,000 and purchases inventory for $200,000. What basis will Locust Corp have in each of these assets?

Susan transfers property (basis of $50,000and fair market value of $25,000) to Thrush Corp in exchange for shares of Section 1244 stock. (Assume the transfer qualifies under Section 351)

a) What is the basis of the stock to Susan? (Susan and Thrush do not make an election to reduce her stock basis)

b) What is the basis of the stock to Susan for purposes of Section 244?

c) If susan sells the stock for $20,000 two years late, how will the loss be treated for tax purposes?

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