1. M and H – old friends from GBC track days– meet up with their scientifically slanted buddy – Gizmo. They decide to form a super-sneaker company…hoping to set up for success by targeting aspiring Olympian track stars! M has a building worth 400,000 (100,000 basis). A has a rented warehouse full of old sneakers, computers, printers, copiers, and various parts of stuff he has stored forever… worth 200,000 (0 basis). Gizmo is a mad scientist…very creative. M and H want to pull Gizmo into their adventure/dream! But, like lots of long-haired crazy scientists, all Gizmo’s got is a brain and NO MO $$$! He agrees to put his mind to work and help M and H get this business idea rolling, if they hook him up with some stock in the venture! For legal liability protection, they decide to incorporate the business into a company called MHG (some people think MHG stands for “may he go!”) Corp. M will get 400,000 shares for his building; H will get 200,000 shares for his “stuff”; and Gizmo with get 100,000 shares for providing his scientific know-how service for the first year. They have determined that the Corp stock is worth $700,000.

Q1 - Each of the parties will receive stock in exchange for their respective “contributions” as shown above. What are the tax consequences (how much gain or loss or income, if any, gets recognized?) _____________

By M? __________________

By H? _________________

By Gizmo? _________________

Q2 - What will be the basis in the MHG stock received by

M? _______________

H? _______________

Gizmo? ____________

Q3 - What basis will MHG Corp Inc. have

In the building that M provided? ___________

In the “other stuff” that H provided? __________

Answer rating: 100% (QA)

1There is no profit at the moment for M H as they have invested the same amount and ... View the full answer