Fill in the blanks using the Answer key below.

Apple, Bob, Chip, and Dan transfer property to Pen corporation in exchange for 100% of its stock. Each receives 25% of its shares as a result. Apple transfers land with a basis of $25,000 and a fair value of $20,000. Bob transfers equipment with a basis of $5,000 and a fair value of $20,000 (prior depreciation of $15,000 was taken). Chip transfers $20,000 in cash. Dan transfers a $20,000 (face value and amount) installment note that he had received in exchange for a capital asset in which Dan had a $2,000 basis.

1. Apple realizes a -blank- and recognizes a -blank-.
2. Bob realizes a -blank- and recognizes B realizes a -blank- of it under Section 1245 due the prior depreciation.
3. The transfer of money by Chip -blank- the exchange from qualifying under Section 351(a) because money -blank- considered property for this purpose.
4. Dan realizes a -blank- gain -blank-recognize it. This hinges on whether Section 453B(a) applies, noting it generally requires the recognition of any gain realized upon the disposition of an installment obligation.
5. If Apple sells his stock in Pen corporation for $20,000, then Apple will recognize either a $5,000 loss or a $0 loss depending on whether an election under Section -blank- is made.
6. Pen corporation assumes a -blank- basis in the land absent an election to instead assume a -blank-. Pen corporation also assumes a -blank- basis in the equipment and a -blank- basis in the installment obligation.

Answer Key

$5,000 loss

$0 loss

$5,000 gain

$15,000 gain

none

all

prevents

does not prevent

is

is not

$18,000

$0

and has to

but does not have to

351(a)

362(e)(2)(A)

358(a)

$20,000

$25,000

$5,000

$2,500

$2,000