Cara, Bob, and Steve want to begin a business on January 1, 2018. The individuals are considering three business forms—C corporation, partnership, and S corporation.

• Cara has investment land with a $36,000 adjusted basis and a $50,000 FMV that she is willing to contribute. The land has a rundown building on it having a $27,000 basis and a $15,000 FMV. Cara has never used the building nor rented it. She would like to get rid of the building. Because she needs cash, Cara will take out a $25,000 mortgage on the property before the formation of the new business and have the new business assume the debt. Cara obtains a 40% interest in the entity.

• Bob will contribute machinery and equipment, which he purchased for his sole proprietorship in January 2012. He paid $100,000 for the equipment and has used the MACRS rules with a half-year convention on this seven-year recovery period property.

He did not make a Sec. 179 expensing election for this property, and he elected out of bonus depreciation. The FMV of the machinery and equipment is $39,000. Bob obtains a 39% interest in the entity.

• Steve will contribute cash of $600 and services worth $20,400 for his interest in the business. The services he will contribute include drawing up the necessary legal documentation for the new business and setting up the initial books. Steve obtains a 21% interest in the entity.

To begin operations, the new business plans to borrow $50,000 on a recourse basis from a local bank. Each owner will guarantee his or her ownership share of the debt. What are the tax and nontax consequences for the new business and its owners under each alternative? Assume that any corporation will have 200 shares of common stock authorized and issued. For the partnership alternative, each partner receives a capital, profits, and loss interest. How would your answer to the basic facts change if instead Steve contributes $2,600 in cash and $18,400 in services?