Assuming they decided on setting up a corporation, Drew will be contributing a warehouse worth $ 125,000 which he originally purchased for $50,000 in exchange for of the stock of the company. However, Carter does not know if he will be contributing $100,000 of machinery and $25,000 of cash or the machinery along with $25,000 of services for of the stock of the company.

(2) Please expl ain the tax impact of the formation of the C ompany and what advi c e would you give Drew and Carter on what Carter should contribute.

During year 1, the Company Drew and Carter set up is profitable a nd called DC Townhouses , Inc . Its financials are as follows:

Income $1,250,000

Accounts Receivable $100,000

Account Payable $75,000

Purchase of new and used machinery $125,000

Bank loan of $125,000

Interest on a bank loan for the purchase of supplies $10,000

Employee meals $25,000

Client entertainment $12,000

(3) Please advise DC Townhouses , Inc. on its filings requirements and advise DC Townhouses , Inc. on the opportunities you see based upon its financials.

In year 10, after amassing a fortune, Drew and Carter decide to close DC Townhouses , Inc . The value of the remaining assets in the c ompany are worth $125,000 and the company has cash on hand of $100,000.

(4) Please describe the tax impact of liquidating DC Townhouses , I nc . to both the Company and Drew and Carter.