Reference no: EM133184719

Question - Demonte and Felicia agreed to form a C corporation called "Dee-Fee Corporation" on December 1, 2021. Demonte contributed land with a basis of $20,000 and a market value of $50,000. On the same day, Felicia contributed a van with an adjusted basis of $80,000 and a market value of $50,000. The corporation will use this van for making product deliveries. As part of their agreement, Demonte received 45 out of the company's 100 outstanding shares and Felicia received the other 55 shares. Demonte and Felicia are not related to one another.

Does this transaction have an impact on Demonte's tax liability for the year 2021? State "yes" or "no." If "yes," further state if it is a tax cost or a tax saving.

What is the corporation's basis in the land that Demonte contributed?

If Demonte resells one-half of his shares in Dee-Fee to Mango, an unrelated party, on December 13, 2022 for $18,000, by what amount will his federal tax liability increase?

Was it rational or irrational for Demonte to agree to receive fewer shares in Dee-Fee Corporation when the corporation was formed? State "rational" or "irrational" and discuss.