Red Corporation wants to set up a manufacturing facility in a mid western state.
After considerable negotiations with a small town in Ohio, Red accepts the following offer: land (fair market value of $3 million) and cash of $1 million.
a. How much gain or income, if any, must Red Corporation recognize?
b. What basis will Red Corporation have in the land?
c. Within one year of the contribution, Red constructs a building for $800,000 and purchases inventory for $200,000. What basis will Red Corporation have in each of those assets?