Homework Help is Here – Start Your Trial Now!
Business
Accounting
Required Prepare a memo to Ken and Marilyn that addresses the tax consequences of a redemption of their shares. If you believe there are alternative structures, you should address those and explain the consequences of the alternatives identified. Recall that you can only cite primary authorities.

Required Prepare a memo to Ken and Marilyn that addresses the tax consequences of a redemption of their shares. If you believe there are alternative structures, you should address those and explain the consequences of the alternatives identified. Recall that you can only cite primary authorities.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
See similar textbooks
icon
Related questions
Question
100%
ACCT 540 Research Project 2 Facts Ken and Marilyn Hert started a business in 1998 in an S corporation form. Ken is 72 years old and Marilyn is 70. The business struggled for many years but has now become very profitable. The Herts have two children, Fred, age 46, and Jessica, age 43. The children worked in the business while in high school and college but then pursued their own interests. Three years ago Ken and Marilyn became increasingly concerned about the ownership succession plan for the business. After discussing the issue with their kids, they decided to make a gift of 10% of the company to each of the children. So Ken now owns 40%, Marilyn 40 %, Fred 10%, and Jessica 10%. The gifts were necessary to induce the kids to begin working in the business with the objective of eventually turning over ownership to the kids. Ken and Marilyn are now comfortable with the idea of retiring and turning the business over to Fred and Jessica. They propose to redeem their shares so that the two children own 100% of the company. The business is valued at $11.2 Million. Ken and Marilyn will receive $8,960,000 for their 80% interest. The corporation produces sufficient cash flow that Ken and Marilyn believe that their shares can be purchased over 12 years. Corporate AAA is $3,560,000. Ken and Marilyn each have a tax basis in their shares of $1,400,000. Required Prepare a memo to Ken and Marilyn that addresses the tax consequences of a redemption of their shares. If you believe there are alternative structures, you should address those and explain the consequences of the alternatives identified. Recall that you can only cite primary authorities.
Transcribed Image Text:ACCT 540 Research Project 2 Facts Ken and Marilyn Hert started a business in 1998 in an S corporation form. Ken is 72 years old and Marilyn is 70. The business struggled for many years but has now become very profitable. The Herts have two children, Fred, age 46, and Jessica, age 43. The children worked in the business while in high school and college but then pursued their own interests. Three years ago Ken and Marilyn became increasingly concerned about the ownership succession plan for the business. After discussing the issue with their kids, they decided to make a gift of 10% of the company to each of the children. So Ken now owns 40%, Marilyn 40 %, Fred 10%, and Jessica 10%. The gifts were necessary to induce the kids to begin working in the business with the objective of eventually turning over ownership to the kids. Ken and Marilyn are now comfortable with the idea of retiring and turning the business over to Fred and Jessica. They propose to redeem their shares so that the two children own 100% of the company. The business is valued at $11.2 Million. Ken and Marilyn will receive $8,960,000 for their 80% interest. The corporation produces sufficient cash flow that Ken and Marilyn believe that their shares can be purchased over 12 years. Corporate AAA is $3,560,000. Ken and Marilyn each have a tax basis in their shares of $1,400,000. Required Prepare a memo to Ken and Marilyn that addresses the tax consequences of a redemption of their shares. If you believe there are alternative structures, you should address those and explain the consequences of the alternatives identified. Recall that you can only cite primary authorities.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Administration and Procedures
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS