Question
Red Corporation wants to set up a manufacturing facility in a midwestern state. After considerable negotiations with a small town in Ohio, Red accepts the
Red Corporation wants to set up a manufacturing facility in a midwestern state. After considerable negotiations with a small town in Ohio, Red accepts the following offer: land (fair market value of $3 million) and cash of $1 million.
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How much income, if any, must Red Corporation recognize?
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What basis will Red Corporation have in the land?
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Assume that in addition to the facts given, the small town offers to reduce the established property tax rate by 40% on new assets acquired by Red during the two-year period after locating in the town. What are the Federal income tax consequences of the property tax abatement?
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