Question

Mark is a radiologist and maintains a radiology practice (X-ray). Jennifer is an Information Systems Specialist and has created a computer program for the administration and operation of radiology offices. Both have decided to join to create the X-Rays Software Corp. (hereinafter X-Rays). The corporation, for profit, was organized under the laws of its state of organization on January 2, 2018. X-Rays made the election of Corporation S after complying with all the requirements established in the Federal Internal Revenue Code.

Mark and Jennifer each receive 100 common shares of X-Rays by contributing the following assets to the new corporation

STOCKHOLDER	PROPERTY	TAX BASIS	MARKET VALUE
MARK	Building	$100,000	$275,000
	Equipment	75,000	50,000
	Cash	50,000	50,000
	Mortgage (debt)	25,000	25,000
			$400,000
JENNIFER	Computer program	20,000	200,000
	License	5,000	100,000
	Cash	50,000	50,000
			$350,000

The mortgage note was assumed by Mark in the sale of the building. The promissory note does not require payments to amortize the principal until January 1, 2022.

1) What is Mark's initial stock basis?

2) What is Jennifer's inital stock basis?

3) What is the inital basis of all the assets received by X-ray?

Answer 1

Answer to Part 1 &2

Description	Initial stock basis (in $)
	Mark's	Jennifer's	Total
Building (Book Value - Debt)	75,000	-	75,000
Equipment (Market Value or Tax Value whichever is lesser)	50,000	-	50,000
Cash	50,000	-	50,000
Computer program	-	20,000	20,000
License	-	5,000	5,000
Cash	-	50,000	50,000
Total Assets	1,75,000	75,000	2,50,000
Total Shares Common	70	30	100

Note: Payment of Mortgage is the liability of Mark, Hence deducted from the building value.   

Answer to Part 3:

Initial basis for Assets received by X-Rays:

From Mark: $ 200000 (100000+50000+50000)

From Jennifer: $ 75000 (20000+5000+50000)

Total: $275000 received by X-Rays.