Lark City donates land worth $300,000 and cash of $100,000 to Orange Corporation as an inducement to locate in the city. Four months later, Orange purchases additional land and a building at a cost of $500,000 and moves its operations to Lark City. Ann,

the sole shareholder, contributes equipment (basis of $70,000 and fair market value of $200,000) to help Orange in its new operations. What are the tax consequences of these transfers to Orange Corporation?

Orange Corporation will not have income on the transfers from Lark City or Ann. However, its basis in the donated land is zero. In addition, Orange must reduce its basis in the purchased land and building from $500,000 to $400,000 . The basis of any property acquired with money received from a nonshareholder during a 12-month period beginning on the day the contribution is received is reduced by the amount of the contribution. Orange will have a basis of $70,000 in the equipment it receives from Ann. Finally, the transfer, which is a capital contribution by Ann, increases her stock basis in Orange by $70,000.