Problem NO: 11

Jorge contributed land he held as an investment (fair market value $120,000; basis $55,000) and inventory (fair market value $80,000; basis $75,000) t

Jorge contributed land he held as an investment (fair market value $120,000; basis $55,000) and inventory (fair market value $80,000; basis $75,000) to ABC Corporation in exchange for 50 percent of the ABC stock (50 shares valued at $160,000) and $40,000 cash in a qualifying §351 exchange.  

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a. What amount of gain does Jorge recognize on the exchange? What is the character of the gain? What would be Jorge's tax basis in his ABC stock after the exchange?

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b. Assume the same facts except that Jorge received $40,000 of business property from ABC instead of $40,000 cash. What are the amount and character of gain Jorge would recognize on the exchange?

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c. Assume the original facts in this problem except that the inventory had a tax basis of $90,000 so that Jorge realized a $10,000 loss on the inventory (he still realized a $65,000 gain on the land). How much gain or loss would he recognize on the exchange?  

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