Architect, a cash basis taxpayer, has been conducting a business as a sole proprietorship for several years.  Architect decides to incorporate, and on July 1 of the current year he forms Design, Inc., to which he transfers the following assets:                   Asset              A.B.          FMV      Accounts Receivable     $    0        $  60,000      Supplies                     0           20,000      Unimproved Land            60,000       120,000        Total                   $  60,000       200,000          The supplies were acquired nine months ago and their cost was immediately deducted by Architect as an ordinary and necessary business expense.             In exchange, Architect receives 100 shares of Design common stock with a FMV of $100,000.  In addition, Design assumes $70,000 of accounts payable to trade creditors of Architect's sole proprietorship and a $30,000 bank loan incurred by Architect two years ago for valid business reasons.             Design elects to become a cash method, calendar year taxpayer.  During the remainder of the current year, it pays the accounts payable and collects $40,000 of the accounts receivable transferred by Architect.   (a) What are the tax consequences (gain or loss recognized, basis, and holding period) of the incorporation to Architect and Design, Inc.?   (b)  Who will be taxable upon collection of the accounts receivable: Architect, Design, or both?

Architect, a cash basis taxpayer, has been conducting a business as a sole proprietorship for several years.  Architect decides to incorporate, and on July 1 of the current year he forms Design, Inc., to which he transfers the following assets:  

              Asset              A.B.          FMV

     Accounts Receivable     $    0        $  60,000

     Supplies                     0           20,000

     Unimproved Land            60,000       120,000

     Total                   $  60,000       200,000

     The supplies were acquired nine months ago and their cost was immediately deducted by Architect as an ordinary and necessary business expense.

          In exchange, Architect receives 100 shares of Design common stock with a FMV of $100,000.  In addition, Design assumes $70,000 of accounts payable to trade creditors of Architect's sole proprietorship and a $30,000 bank loan incurred by Architect two years ago for valid business reasons.

          Design elects to become a cash method, calendar year taxpayer.  During the remainder of the current year, it pays the accounts payable and collects $40,000 of the accounts receivable transferred by Architect.

(a) What are the tax consequences (gain or loss recognized, basis, and holding period) of the incorporation to Architect and Design, Inc.?

(b)  Who will be taxable upon collection of the accounts receivable: Architect, Design, or both?