Question

Related to tax

Facts:

1. Paul and Jon are partners in a small successful restaurant. They want to expand but need a second location. They think their business has a FMV of $2,000,000 (and has a basis of $500,000 to Paul and a basis of $250,000 to Jon). The business is currently an LLC.

2. Jason is a real estate broker and investor. He normally buys real estate and sells it quickly.   He is fully licensed as a real estate broker in Texas.    Jason has a vacant lot that he paid $1,200,000 last year. The FMV is currently $1,000,000.

3. No one wants gain from this transaction this year.

4. Paul and Jon approach Jason about the following business proposition: the restaurant and the land are contributed to a new corporation. Each gets 1/3 of the stock. Client: does this work from an economic standpoint?

5. Jason is not sure he likes that idea and instead offers the following (this occurs when Jason is added to the new Corporation):

A. The corporation will distribute out to Jason a part of the parking lot (of the old location). The FMV is $200,000 and the basis to the corp is $100,000. Jason will contribute the new land for stock. Client: what is the amount of stock should Jason get in the corp?

6. If #5 does not work- then Jason would take $200,000 in convertible preferred stock and $200,000 in value of the parking lot land (see #5) and $600,000 in cash.

7. Keep in mind Jason wants to own part of the restaurant- he thinks it will be successful.

Assignment:

What is the income tax consequences idea #4?

What is the income tax consequences idea #5?

What is the income tax consequences idea #6?

Is there a better economic structure that will give the three people the result they desire? If so what it is and defend the idea.

Answer 1

Answer:

(a) : In thought 4, the wage would be saddled to all in square with Ratio i.e 1/third would be exhausted to every one of the accomplices in Corporation

(b) : Corporation should pay wage impose on 100000 $ for parking garage conveyed to Jason. Additionally intrigue got on note given by Jason would be assessable.

(C) : Fixed Divident to be paid to Jason would draw in Divident Distribution impose.

(d) : Better financial structure would be that if every one of them cooperate on benefit and misfortune sharing as opposed to seeing different financial aspects in it.