Scroll down to complete all parts of this task. Howard Blair is a senior tax consultant with the CPA firm, Holland, Newton \& Woodbine, LLP. He has written a letter to Larry Fine, CEO of Stages Inc., to explain the tax implications associated with the incorporation of Stages Inc. Stages is a newly formed C corporation, the stock of which is owned 30 percent by Larry Fine, 40 percent by Morgan Fine, and 30 percent by Carl Fine (three brothers). The purpose of the letter to the client is to explain the tax implications associated with the incorporation of Stages Inc. You have been asked to review the letter to Larry Fine and recommend any needed corrections or modifications. Documentation for the amounts in the letter can be found in the exhibits. To revise the letter, click on each segment of underlined text below and select the needed correction, if any, from the list provided. If the underlined text is already correct in the context of the letter, select [Original text] from the list. If removal of the entire underlined text is the best revision to the letter as a whole, select [Delete text] from the list. Congratulations to you, Morgan, and Carl on your incorporation of Stages! We have reviewed the details of your plans for formation of a C corporation. Our comments and suggestions are outlined below. 1. Larry should recognize taxable income (loss) of $100,000. This is 1,000 hours at $100 per hour for preliminary work done exclusively by Larry prior to the incorporation. There is no taxable income to Larry for the contribution of cash. 2. There is no taxable income (loss) to Morgan for his contribution of land. Even though the fair value of the land is higher than Morgan's basis in the land by $150,000, no taxable income is recognized upon the incorporation. 3. Carl's taxable income will be zero. Generally, when a group of shareholders together own more than 80 percent of a corporation, no gain or loss is recognized by shareholders who contribute property to the corporation. 4. The adjusted basis to Larry of Stages Inc. stock received by Larry in the incorporation is $200,000. The cash contributed by Larry to Stages amounted to $200,000. 5. The adjusted basis to Morgan of Stages, Inc., stock received by Morgan in the incorporation is $400,000. The fair value of the land contributed by Morgan to Stages is $400,000. 6. The adjusted basis to Carl of Stages Inc., stock received by Carl in the incorporation is $150,000. This is the adjusted basis of the property Carl contributed. 7. The adjusted basis to Stages Inc. of the property received from Morgan is $400,000. This is the fair value of the land received from Morgan. 8. The adjusted basis to Stages Inc. of property received from Carl is $150,000. $ This is Carl's adjusted basis in the property. STAGES INC. 4.242 BOARDWALK DRIVE NEWARK, NJ 89210 June 13, Year 1 Howard Blair Holland, Newton \& Woodbine, LLP 236 Forrest Park Road Newark, NJ 89210 Dear Howard, Well, we finally did it! On June 1, Year 1, my brothers and I finally formed that real estate venture we've been talking about! We are excited about getting started in this business, but we also know there are a lot of important issues to address before we can really move forward. One of those issues pertains to the tax implications of the business we formed. As you know, we ended up forming a C corporation. I ended up owning 30 percent of the stock, my brother Morgan received 40 percent, and my brother Carl received 30 percent. The stock we received was in exchange for the following contributions we made to the corporation: - My contribution: cash of $200,000 and services rendered valued at $100,000 (see the attached invoice for services rendered by my sole proprietorship, "Fine Sundry Services"). - Morgan's contribution: land with a fair value of $400,000 (see the attached appraisal). - Carl's contribution: land with a fair value of $600,000 (see the attached appraisal). Also, because Carl's land was collateral, or security, for a $300,000 mortgage that Carl had taken out before, Stages Inc., agreed to assume that liability at the same time the land was transferred to Stages Inc. (see the attached mortgage statement). So, the net fair value that Carl contributed was really only $300,000 (the fair value of the land of $600,000 less the liability assumed of $300,000). Before we get too involved in our real estate dealings, we want to make sure we understand the tax implications of this incorporation. Specifically, Stages Inc. would like you to determine: - The amount of taxable income (loss) recognized by Morgan, Carl, and me as a result of the incorporation. - The adjusted basis to Morgan, Carl, and me in the stock we received from Stages Inc. - The adjusted basis to Stages Inc. of the property contributed to Stages Inc. by Morgan and Carl. Thank you for your help on this project, Howard. I look forward to hearing your conclusions. Sincerely, Larry Fine, CEO Per prior agreement among Larry Fine, proprietor, and Morgan Fine and Carl Fine, brothers of proprietor, payment for services rendered will be in the form of shares of stock in Stages Inc., a C corporation incorporated in New Jersey to be jointly owned by Larry Fine, Morgan Fine, and Carl Fine. EYE-IN-THE-SKY APPRAISAL SERVICES 1598 Calhoun Street Newark, NJ 892llo June 2, Year 1 Larry Fine CEO Stages Inc. 4242 Boardwalk Drive Newark, NJ 89210 Dear Larry: You have asked us to ascertain the fair value of a certain plot of land, described as follows: Although today's volatile real estate market makes precise determinations of fair value difficult, it is our professional judgment that the plot of land has a fair value in the range of $380,000 to $420,000, with our best estimate of the fair value being $400,000. We value your business and we look forward to serving you again the next time you need real estate appraisal services. Sincerely, Eddie Egal CEO EYE-IN-THE-SKY APPRAISAL SERVICES 1598 Lethoun Street Newark, NJ 89ell June 3 , Year 1 Larry Fine CEO Stages Inc. 4242 Boardwalk Drive Newark, NJ 89210 Dear Larry: You have asked us to ascertain the fair value of a certain plot of land, described as follows: Although today's volatile real estate market makes precise determinations of fair value difficult, it is our professional judgment that the plot of land has a fair value in the range of $575,000 to $625,000, with our best estimate of the fair value being $600,000. We value your business, and we look forward to serving you again the next time you need real estate appraisal services. Sincerely, Eddie Egal CEO Carl Fine 8416 Roosevelt Boulevard Newark, NJ 89210 Scroll down to complete all parts of this task. Howard Blair is a senior tax consultant with the CPA firm, Holland, Newton \& Woodbine, LLP. He has written a letter to Larry Fine, CEO of Stages Inc., to explain the tax implications associated with the incorporation of Stages Inc. Stages is a newly formed C corporation, the stock of which is owned 30 percent by Larry Fine, 40 percent by Morgan Fine, and 30 percent by Carl Fine (three brothers). The purpose of the letter to the client is to explain the tax implications associated with the incorporation of Stages Inc. You have been asked to review the letter to Larry Fine and recommend any needed corrections or modifications. Documentation for the amounts in the letter can be found in the exhibits. To revise the letter, click on each segment of underlined text below and select the needed correction, if any, from the list provided. If the underlined text is already correct in the context of the letter, select [Original text] from the list. If removal of the entire underlined text is the best revision to the letter as a whole, select [Delete text] from the list. Congratulations to you, Morgan, and Carl on your incorporation of Stages! We have reviewed the details of your plans for formation of a C corporation. Our comments and suggestions are outlined below. 1. Larry should recognize taxable income (loss) of $100,000. This is 1,000 hours at $100 per hour for preliminary work done exclusively by Larry prior to the incorporation. There is no taxable income to Larry for the contribution of cash. 2. There is no taxable income (loss) to Morgan for his contribution of land. Even though the fair value of the land is higher than Morgan's basis in the land by $150,000, no taxable income is recognized upon the incorporation. 3. Carl's taxable income will be zero. Generally, when a group of shareholders together own more than 80 percent of a corporation, no gain or loss is recognized by shareholders who contribute property to the corporation. 4. The adjusted basis to Larry of Stages Inc. stock received by Larry in the incorporation is $200,000. The cash contributed by Larry to Stages amounted to $200,000. 5. The adjusted basis to Morgan of Stages, Inc., stock received by Morgan in the incorporation is $400,000. The fair value of the land contributed by Morgan to Stages is $400,000. 6. The adjusted basis to Carl of Stages Inc., stock received by Carl in the incorporation is $150,000. This is the adjusted basis of the property Carl contributed. 7. The adjusted basis to Stages Inc. of the property received from Morgan is $400,000. This is the fair value of the land received from Morgan. 8. The adjusted basis to Stages Inc. of property received from Carl is $150,000. $ This is Carl's adjusted basis in the property. STAGES INC. 4.242 BOARDWALK DRIVE NEWARK, NJ 89210 June 13, Year 1 Howard Blair Holland, Newton \& Woodbine, LLP 236 Forrest Park Road Newark, NJ 89210 Dear Howard, Well, we finally did it! On June 1, Year 1, my brothers and I finally formed that real estate venture we've been talking about! We are excited about getting started in this business, but we also know there are a lot of important issues to address before we can really move forward. One of those issues pertains to the tax implications of the business we formed. As you know, we ended up forming a C corporation. I ended up owning 30 percent of the stock, my brother Morgan received 40 percent, and my brother Carl received 30 percent. The stock we received was in exchange for the following contributions we made to the corporation: - My contribution: cash of $200,000 and services rendered valued at $100,000 (see the attached invoice for services rendered by my sole proprietorship, "Fine Sundry Services"). - Morgan's contribution: land with a fair value of $400,000 (see the attached appraisal). - Carl's contribution: land with a fair value of $600,000 (see the attached appraisal). Also, because Carl's land was collateral, or security, for a $300,000 mortgage that Carl had taken out before, Stages Inc., agreed to assume that liability at the same time the land was transferred to Stages Inc. (see the attached mortgage statement). So, the net fair value that Carl contributed was really only $300,000 (the fair value of the land of $600,000 less the liability assumed of $300,000). Before we get too involved in our real estate dealings, we want to make sure we understand the tax implications of this incorporation. Specifically, Stages Inc. would like you to determine: - The amount of taxable income (loss) recognized by Morgan, Carl, and me as a result of the incorporation. - The adjusted basis to Morgan, Carl, and me in the stock we received from Stages Inc. - The adjusted basis to Stages Inc. of the property contributed to Stages Inc. by Morgan and Carl. Thank you for your help on this project, Howard. I look forward to hearing your conclusions. Sincerely, Larry Fine, CEO Per prior agreement among Larry Fine, proprietor, and Morgan Fine and Carl Fine, brothers of proprietor, payment for services rendered will be in the form of shares of stock in Stages Inc., a C corporation incorporated in New Jersey to be jointly owned by Larry Fine, Morgan Fine, and Carl Fine. EYE-IN-THE-SKY APPRAISAL SERVICES 1598 Calhoun Street Newark, NJ 892llo June 2, Year 1 Larry Fine CEO Stages Inc. 4242 Boardwalk Drive Newark, NJ 89210 Dear Larry: You have asked us to ascertain the fair value of a certain plot of land, described as follows: Although today's volatile real estate market makes precise determinations of fair value difficult, it is our professional judgment that the plot of land has a fair value in the range of $380,000 to $420,000, with our best estimate of the fair value being $400,000. We value your business and we look forward to serving you again the next time you need real estate appraisal services. Sincerely, Eddie Egal CEO EYE-IN-THE-SKY APPRAISAL SERVICES 1598 Lethoun Street Newark, NJ 89ell June 3 , Year 1 Larry Fine CEO Stages Inc. 4242 Boardwalk Drive Newark, NJ 89210 Dear Larry: You have asked us to ascertain the fair value of a certain plot of land, described as follows: Although today's volatile real estate market makes precise determinations of fair value difficult, it is our professional judgment that the plot of land has a fair value in the range of $575,000 to $625,000, with our best estimate of the fair value being $600,000. We value your business, and we look forward to serving you again the next time you need real estate appraisal services. Sincerely, Eddie Egal CEO Carl Fine 8416 Roosevelt Boulevard Newark, NJ 89210