# Tax 2 case study regarding income tax

Facts:

1. Jeff owns a small successful restaurant. He want to expand but need a second location.  He think his business has a FMV of \$2,000,000 (and has a basis of \$500,000 to Jeff).  The business is currently an LLC.

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1. Thomas 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.    Thomas has a vacant lot that he paid \$1,800,000 three years ago.  The FMV is currently \$1,000,000.

1. No one wants gain from this transaction this year, but if there is a loss to be had- then earliest the better.

1. Jeff approaches Thomas about the following business proposition:  the restaurant and the land are contributed to a new corporation.  Jeff gets 2/3’s of the stock and Thomas gets 1/3 of the stock.

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

The corporation will distribute out to Thomas a part of the parking lot (of the old location).  The FMV is \$300,000 and the basis to the corp is \$75,000.  Thomas will contribute the new land for stock.  Client also has this question:  what is the amount of stock should Thomas get in the corp?

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

Assignment:

Question 1 :  What is the income tax consequences idea #4?

Question 2:  What is the income tax consequences idea #5?

Question 3:   Is there a better economic structure that will give the two people the result they desire?  If so what it is and defend the idea.

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