1)

Bill, Bob, Bud, Sue and Jane decided for form a corporation, Big Bubbas Brewing Company, each will end up with 2,500 shares. Each individual gave the following:

Bill gave $100,000 in cash and brewing equipment with a FMV of $100,000 and his basis was $10,000.

Bob gave a building and land with a FMV of $400,000, his basis in the property was $70,000 and the property had a loan of $200,000.

Sue gave a food truck with a FMV of $60,000, her basis in the truck was $100,000. In addition, she gave $10,000 of legal services and $130,000 of cash.

Jane gave additional brewing equipment with a FMV of $300,000, her basis was $25,000 and the equipment had a loan of $100,000.

Bud gave A/R of $100,000, he is a cash basis tax payer and $100,000 in cash.

All loans were transferred to the corporation. Please advise what are the tax ramifications to the new shareholders and the corporation, using code sections and numbers.

The shareholders ask, if there are any gains from the transactions, is there a way to remove the gains?

In Year 2, the company had earnings and profits from Year 1 and Year 2 of $560,000. The company paid out a distribution of $400,000, pro-rata to the shareholders in cash.

Please advise the tax ramifications to the corporation and shareholders.

2)

The same shareholders as above, with the same basis in their shares as above for the use in this problem. In Year 3, the company had accumulated E&P of $160,000 and current E&P of $100,000. On December 31, Bill redeemed 2,000 of his shares for $150.00 per share. On March 31, the company made a distribution to each shareholder of $50,000 and then on September 30, the company made another $20,000 distribution to each shareholder. On June 30, Sue sold of her shares to Mary Anne for $150,000.

Please discuss the tax ramifications for Year 3 to the shareholders and corporation.

In Year 4, the company was sold all its assets $1,000,000, the companys balance sheet looked as follows:

FMV Basis

Inventory 100,000 25,000

Equipment 200,000 50,000

Building 350,000 175,000

Land 300,000 100,000

Liabilities on Building and Land $200,000

All assets and liabilities were transferred as part of the asset sale. Please explain the tax ramifications to Big Bubbas Brewing Company, its shareholders and the acquiring corporation. The proceeds of the sale were distributed pro-rata based upon stock ownership. The companys corporate tax rate is 21% and there are no NOLs or capital loss carry forwards. Please include numbers.

Would the shareholders of Big Bubba rather sell the stock for $800,000?