Circle Inc. $($CI$)$ is a calendar year C corporation that has two equal shareholders $$ Doug and Jane. Doug, age $81,$ owns $1,000$ shares of CI$$s common stock, with a basis of $$300,000.$ Jane, age $34,$ also owns $1,000$ shares, but her basis is $$7$million. Jane inherited the stock from her father. CI$$s balance sheet assets and liabilities are set forth below.

Olson Inc. $($Olson$)$ wants to buy CI$,$ and Doug and Jane are ready to sell. Assume that CI is subject to a combined federal and state income tax rate of $40\%,$ and Doug and Jane$$s combined federal and state ordinary marginal income tax rate is $40\%$ and capital gain rate is $20\%.$

CI$$s Assets and Liabilities.

Book value basis Fair market value

Cash $ $1,500,000$ $ $1,500,000$

Inventory $$2,500,000$ $$3,000,000$

Accounts Receivable $$2,000,000$ $$2,000,000$

Equipment $$2,000,000$ $$3,000,000$

Customer Lists $-$ $$500,000$

Copyrights $$200,000$ $$500,000$

Goodwill $-$ $$11,000,000$

Total Assets $$8,200,000$ $$21,000,000$

Accounts Payable $ $1,500,000$ $ $1,500,000$

A$.$CI sells its assets to Olson for $$20$ million plus an assumption of all liabilities. CI pays its taxes and distributes all remaining proceeds to Doug and Jane. What is Olson$$s basis in the assets? Any suggestions for Doug or Jane?

B$.$ Olson buys CI$$s stock from Doug and Jane for $$18$ million. Is this a sensible price under the circumstances? Calculate the tax impacts to CI$,$ Doug, and Jane. What is Olson$$s basis in its CI stock?

C$.$ Olson buys $70\%$ of CI$$s stock from Doug and Jane for $12\mathrm{.}6$ million. CI redeems the remaining $30\%$ by paying $$2\mathrm{.}7$ million cash to Doug $($it will borrow an additional $$1\mathrm{.}2$ million$)$ and distributing the equipment to Jane. Calculate the tax impacts to CI$,$ Doug and Jane.

D$.$ Olson forms a new subsidiary $($S$).$ CI is merged into S$,$ and Doug and Jane are each issued $100,000$ shares $($value $$90$ per share$)$ of Olson$$s common stock. What are the tax impacts to CI$,$ Doug, Jane, Olson and S in such a reorganization? If Doug and Jane wanted some cash out of the deal, how much cash could they be paid without destroying the tax$-$free reorganization?

E$.$ Same as d$.,$ except S is merged into CI$.$ What are the tax impacts to CI$,$ Doug, Jane, Olson and S in such a reorganization? If Doug and Jane wanted some cash out of the deal, how much cash could they be paid without destroying the tax free character of the reorganization for everyone?

F$.$ Same as a$.$ except CI is and always has been an S corporation and Doug$$s basis in his stock is $$3$ million and Jane$$s basis is $ $8$ million.

G$.$ Same as b$.$ except CI is and always has been an LLC taxed as a partnership, and Doug$$s basis in his partnership interest is $ $3$ million and Jane$$s basis is $$8$ million.