Forrow Jones and Nena Taylor have decided that for the sake of the business the two of them should no longer co-exist as owners of Two Sisters Enterprises, Inc.

Forrow and Nena are now seeking professional tax advice on how to address their dilemma. They are interested in learning how they can best salvage the business with either one of them or neither of them still involved in the business. In addition to seeking advice on different approaches that can address the present dilemma, the minimization of the income tax consequences to both the business and each of them (as well as Daniel and Eileen) in their individual capacities are of paramount interest to them.

In anticipation of the major decision that the owners must soon make, Two Sisters Enterprises, Inc. had all its assets appraised. The Balance Sheet at the date of the very recent appraisal with the corresponding appraisals of the market value of all its assets is as follows:

Assets	Adjusted Tax Basis		Fair Market Value
Cash	$350,000		$350,000
Accounts Receivable	70,000		60,000
Inventory (LIFO Basis) *	180,000		360,000
Equipment	190,000		150,000
Investments (Marketable Securities)	250,000		370,000
Land (Used in The Business)	90,000		80,000
Building	270,000		190,000
Total Assets	$1,400,000		$1,560,000 **

Liabilities And Stockholders' Equity

Accounts Payable $ 70,000

Note Payable 100,000

Mortgage on Building 130,000

Total Liabilities 300,000

Total Stockholders' Equity 1,100,000

Total Liabilities and Stockholder's Equity $1,400,000

* - The FIFO Method Basis of the Inventory would be $240,000.

** - The appraisal of the entire business was $1,900,000.

ASSIGNMENT QUESTIONS

Write a memorandum to Forrow Jones and Nena Taylor describing other forms of businesses

that can be pursued that will allow them to separate their ownerships. Briefly emphasize the

potential federal income tax impact to each of them (and the business entities where appropriate)

of the other forms of business.