Carmen and Marc form Apple Corporation. Carmen transfers land that is Sec. 1231 property, with an adjusted basis of $18,000 and an FMV of $20,000 in exchange for onehalf of the Apple Corporation stock. Marc transfers equipment that originally costs $28,000 on which he has taken $5,000 in depreciation deductions. The equipment has an FMV of $25,000 and he receives onehalf of the stock and a $5,000 shortterm note. The transaction meets the requirements of Sec. 351. Which statement below is correct?

a. Carmen recognizes a $2,000 Sec. 1231 gain and Marc recognizes $5,000 as ordinary income.
b. Carmen recognizes no gain and Marc recognizes $2,000 as ordinary income.
c. There is no recognized gain or loss.
d. Carmen recognizes a $2,000 Sec. 1231 gain and Marc recognizes a $5,000 Sec. 1231 gain.

Carmen transferred land (Sec. 1231 property) that has adjusted basis $18,000 with a FMV of $20,000. This means there is a gain to be recognized on the transfer of $2,000.

In case of Marc, there is no gain or loss on the transfer of equipment. However, the value of $5,000 short term note received will be recognized as ordinary income.

A. Keeping in view the above provided information, this statement is correct.

B. The transfer does result in a gain for Carmen, therefore, this statement is incorrect.

C. As there is gain for one individual and odinary income to be recoginzed for the other, therefore, this statement is also incorrect.

D. Marc has not transferred property Sec. 1231 instead the transfer was of machinery. Hence, this statement is also incorrect.