Facts: 1. Jeff owns a small successful restaurant. He wants to expand but needs a second location. He thinks his business has an FMV of $3,000,000 (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 2,500,000 three years ago. The FMV is currently $2,000,000. 3. No one wants to have a recognized gain from this transaction this year, but if there is a loss to be had- the earliest the better. 4. Jeff approaches Thomas about the following business proposition: the restaurant and the land are contributing to a new corporation. Jeff gets 60% of the stock and Thomas gets 40% 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 $400,000 and the basis to the corp is $675,000. 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: 15 points. What is the income tax consequences idea #4? 15 points. What is the income tax consequences idea #5? 20 points. 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. 50 points. Deliverable: produce a written tax research memo (see ch 1) with appropriate citations.