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. 2. 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. 3. No one wants gain from this transaction this year, but if there is a loss to be had- then earliest the better. 4. 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. 5. 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? 6. Keep in mind Thomas 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? 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.
Facts:
- 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.
2. 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.
3. No one wants gain from this transaction this year, but if there is a loss to be had- then earliest the better.
4. 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.
5. 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?
6. Keep in mind Thomas 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?
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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