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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

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.

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 2/3s 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:

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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