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On June 1, 2020, Hattie and Kitty formed Cat Corporation (a new entity). Kitty contributed manufacturing equipment with a fair market value of $150,000 and a basis of $100,000 in return for a 50% interest in Cat Corporation. The equipment was secured by loan for $50,000 - which i was assumed by Cat Corporation. She took out the loan on 2 May 20, 2020. She purchased the equipment on January 1, 2017. 3 4 Hattie contributed a patent for cat toy manufacturing in return for 5 a 50% interest in Cat Corporation. Hattie purchased the patent on March 1, 2018 6 for $50,000. 7 Ba) Does this transaction qualify for non-recognition treatment under IRC Sect. 351? 9 Why or why not? Explain your answer fully. 1 b) What are the tax consequences to Hattie as a result of this transaction? 2 3) What are the tax consequences to Kitty as a result of this transaction? 4 5 d) What are the tax consequences to Cat Corporation as a result of this transaction? 6 7 e) Would you answer to a) change if Hattie had developed know-how for the equipment B that she contributed (unpatented) specifically for Cat Corporation? If so, why? 9 ) Would your answer to Part c) change if the loan was taken out to purchase 1 the equipment back in 2017? If so why? And if so, how? 2 On June 1, 2020, Hattie and Kitty formed Cat Corporation (a new entity). Kitty contributed manufacturing equipment with a fair market value of $150,000 and a basis of $100,000 in return for a 50% interest in Cat Corporation. The equipment was secured by loan for $50,000 - which i was assumed by Cat Corporation. She took out the loan on 2 May 20, 2020. She purchased the equipment on January 1, 2017. 3 4 Hattie contributed a patent for cat toy manufacturing in return for 5 a 50% interest in Cat Corporation. Hattie purchased the patent on March 1, 2018 6 for $50,000. 7 Ba) Does this transaction qualify for non-recognition treatment under IRC Sect. 351? 9 Why or why not? Explain your answer fully. 1 b) What are the tax consequences to Hattie as a result of this transaction? 2 3) What are the tax consequences to Kitty as a result of this transaction? 4 5 d) What are the tax consequences to Cat Corporation as a result of this transaction? 6 7 e) Would you answer to a) change if Hattie had developed know-how for the equipment B that she contributed (unpatented) specifically for Cat Corporation? If so, why? 9 ) Would your answer to Part c) change if the loan was taken out to purchase 1 the equipment back in 2017? If so why? And if so, how? 2

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