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Two years ago Jorge transferred property he had used in his sole proprietorship to Flycatcher Corporation, a newly formed corporation, for fifty shares of Flycatcher stock. The property had an adjusted basis of $300,000 & a fair market value of $800,000. Six months later Jorge’s friend, Polly, transferred property she had used in her sole proprietorship to Flycatcher Corporation for fifty shares of Flycatcher stock & cash of $100,000. Her property had an adjusted basis of $150,000 & a value of USD 900,000. Both Jorge & Polly serve on Flycatcher’s board of directors. In addition, Polly has a contract with Flycatcher to perform consulting services for the corporation. In the current year, Flycatcher Corporation redeems all of Polly’s Flycatcher stock for property with a probable value of USD 1.4 million. What are the tax issues for Polly & Flycatcher?

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