3. In a liquidating distribution, Business Corporation distributes land to its shareholder Ferrell (an individual). Business Corporation acquired the land in a 351 transfer 6 year ago from Ferrell. At the time of the transfer into the Corporation, the land had basis of $700,000 and FMV of $1,000,000. At the time of distribution to Ferrell, the FMV of the land is $500,000. Ferrell owns 40% of the corporation and his stock basis is $150,000. Ferrells sister owns the remaining 60% of Business Corporation. At the time of the distribution Business Corps current E&P is $50,000 and accumulated E&P is $180,000. (5.5 Points)

a. What are the consequences to Business Corporation on the distribution? (2 points)

b. What are the consequences to Ferrell on the distribution? (1.5 points)

c. What tax planning advice would you offer Business Corp and Ferrell to achieve a more favorable tax result? Note any assumptions you may have made in providing your answer. (2 points)