Final answer:
Erica does not recognize any gain on the transfer of land to a corporation in exchange for stock if she immediately controls the corporation, in compliance with IRC §351. Consequently, Robin Corporation's basis in the land will be the same as Erica's original basis. Both options (1) and (2) are correct, stating that Robin Corporation has a basis of $100,000 and Erica does not recognize gain, respectively.
Step-by-step explanation:
The student's question involves Erica transferring land to a corporation and the tax implications of the transaction. When Erica transfers land with a market value of $500,000 and a basis of $100,000 to Robin Corporation for all of Robin's stock worth $300,000 plus a 10-year note of $200,000, the transaction has several tax consequences.
Firstly, under IRC §351, if a person transfers property to a corporation in exchange for stock and immediately after the exchange is in control of the corporation, generally no gain or loss is recognized. Control is defined as owning at least 80% of the total combined voting power of all classes of stock entitled to vote and at least 80% of the total number of shares of all other classes of stock of the corporation.
In this case, assuming Erica controls the corporation immediately after the exchange, she does not recognize any gain on the transfer. Therefore, the correct option here is (2) Erica does not recognize gain. As for the basis, Robin Corporation's basis in the land would be the same as Erica's, which is $100,000, since the transfer qualifies for non-recognition under §351. Therefore, (1) Robin Corporation has a basis of $100,000 in the land is also correct. Options 3 and 4 are incorrect because they suggest a gain recognition and an adjusted basis which are not applicable under the IRC §351 rules.
Thus, the correct option in the final answer is that both (1) Robin Corporation has a basis of $100,000 in the land and (2) Erica does not recognize gain are correct.