Old McDonalds, Inc., a farm corporation, was incorporated as a C corporation on January 1, 1993. On January 1, 2015, the corporation made an election to be treated as an S corporation beginning in tax year 2015. At the time of the election, the corporations assets included 1,000 acres of unimproved farmland having a cost basis $2,250,000 and a fair market value of $7,000,000. A real estate developer has approached the shareholders with an offer to purchase the land in 2019 for a price of $10,000,000. The shareholders are seriously considering the offer but are concerned about the tax ramifications both for themselves and for the corporation. Since it is already October, one of the shareholders has suggested that they postpone the sale until January, 2020 thereby deferring the reporting of income and the payment of tax for an entire tax year.

Using the memo format previously provided, prepare a memo to the file explaining the various tax ramifications associated with this transaction including the suggestion that the sale be deferred until 2020. Keep in mind that this was previously a C corporation.