On January 1, 2018, Kimmy and Titus (unrelated taxpayers) contribute additional property to Mole Women Corporation (MWC) of which they are already…

1.    On January 1, 2018, Kimmy and Titus (unrelated taxpayers) contribute additional property to Mole Women Corporation (MWC) of which they are already 100% owners. Titus transferred equipment with an adjusted basis of $36,000 and market value of $55,000. In exchange, Titus received $40,000 worth of MWC common, $9,000 of MWC preferred and MWC nonqualified preferred worth $6,000. Titus acquired the equipment on March 14, 2015 and has taken depreciation of $46,000 through the date of the contribution to MWC. Kimmie transferred land and inventory as follows:


FMV: 40,000

Adjusted basis: 14,000


FMV: 20,000

Adjusted basis: 50,000

The land was acquired by Kimmie in 2015 and was held as a capital asset. Kimmie received MWC common worth $33,000 and cash of $24,000. MWC also took over $3,000 of Kimmie’s business liabilities, which were general liabilities (i.e., not associated with either of the assets transferred). No tax avoidance purpose was associated with the liability transfer.

a.    Determine if this exchange meets the requirements of §351. Compute the gain/loss realized, recognized, and the character of gain/loss for each item transferred by Titus and Kimmie. Determine the basis of the stock holdings and the holding period. Determine any gain/loss recognized, the basis of the property, and the holding period of the property in the hands of MWC.

b.    What changes in part a. if a §362(e)(2)(c) election is made?

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