Mr. and Mrs. Albert Smithson have experienced great pride in Orange Corporation, the successful business that they built over their careers, but they believe the time has come for them to think seriously about retirement. They own all of the stock in Orange, a C corporation, and their stock investment has a basis of $200,000. The business, which pays Federal income tax at the 21 percent rate, owns net assets that are worth $4,000,000 and have a basis of $1,500,000. Unfortunately, the Smithsons have no family members who are interested in carrying on the business, so they must resort to liquidating Orange Corporation. Their strategy, in general, is to convert the value of their business into a diversified portfolio of marketable securities and to live off the earnings generated by the portfolio during their retirement years. The Smithsons realize that such a plan will be taxable, so they would like to know the amount that will be available after all Federal taxes are paid. It is important that they have a realistic idea of the amount of the after-tax proceeds so that they can determine whether retiring at this point is even feasible. After working for their entire lives, they are eager to live comfortably off their retirement nest egg.
Mr. and Mrs. Albert Smithson have experienced great pride in Orange Corporation, the successful business that they built over their careers, but they believe the time has come for them to think seriously about retirement. They own all of the stock in Orange, a C corporation, and their stock investment has a basis of $200,000. The business, which pays Federal income tax at the 21 percent rate, owns net assets that are worth $4,000,000 and have a basis of $1,500,000. Unfortunately, the Smithsons have no family members who are interested in carrying on the business, so they must resort to liquidating Orange Corporation. Their strategy, in general, is to convert the value of their business into a diversified portfolio of marketable securities and to live off the earnings generated by the portfolio during their retirement years. The Smithsons realize that such a plan will be taxable, so they would like to know the amount that will be available after all Federal taxes are paid. It is important that they have a realistic idea of the amount of the after-tax proceeds so that they can determine whether retiring at this point is even feasible. After working for their entire lives, they are eager to live comfortably off their retirement nest egg.
SWFT Essntl Tax Individ/Bus Entities 2020
23rd Edition
ISBN:9780357391266
Author:Nellen
Publisher:Nellen
Chapter18: Comparative Forms Of Doing Business
Section: Chapter Questions
Problem 10P
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Transcribed Image Text:Mr. and Mrs. Albert Smithson have experienced great pride in Orange Corporation, the successful business that
they built over their careers, but they believe the time has come for them to think seriously about retirement.
They own all of the stock in Orange, a C corporation, and their stock investment has a basis of $200,000. The
business, which pays Federal income tax at the 21 percent rate, owns net assets that are worth $4,000,000 and
have a basis of $1,500,000.
Unfortunately, the Smithsons have no family members who are interested in carrying on the business, so they
must resort to liquidating Orange Corporation. Their strategy, in general, is to convert the value of their business
into a diversified portfolio of marketable securities and to live off the earnings generated by the portfolio during
their retirement years. The Smithsons realize that such a plan will be taxable, so they would like to know the
amount that will be available after all Federal taxes are paid. It is important that they have a realistic idea of the
amount of the after-tax proceeds so that they can determine whether retiring at this point is even feasible. After
working for their entire lives, they are eager to live comfortably off their retirement nest egg.
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