Eric Wright conducts a dry cleaning business as a sole proprietorship. The business oper$-$ates in a building that Eric owns. Last year, Eric mortgaged for $$150,000$ the building and

the land on which the building sits. He used the money for a down payment on his per$-$sonal residence and college expenses for his two children. He now wants to incorporate

his business and transfer the building and the mortgage to a new corporation, along with

other assets and some accounts payable. The amount of the unpaid mortgage balance will

not exceed Eric$$s adjusted basis in the land and building at the time he transfers them to

the corporation. Eric is aware that Sec. $357($b$)$ could impact the tax consequences of the

transaction because no bona fide business purpose exists for the mortgage transfer, which

the IRS might consider to have been for a tax avoidance purpose. However, Eric refuses

to acknowledge this possibility when you confront him. He maintains that many taxpay$-$ers play the audit lottery and that, in the event of an audit, invoking this issue could be a

bargaining ploy.

Required: What information about the transaction must be provided with the trans$-$feror and transferee$$s tax returns for the year in which the transfer takes place? Discuss

the ethical issues raised by the AICPA$$s Statements on Standar