Six years ago, Mr. Magarian contributed an office building to Magarian Rugs, a C corporation, in exchange for a 25 percent equity interest in the business. Since the contribution, the company uses the building to house its inventory and offices. • After this contribution, Mr. Magarian has an 85% interest in the corporation. • His tax basis in the office building was $500,000 and the building’s appraised FMV on the date of contribution to the business was $675,000. • This year, Magarian Rugs sold the building to an unrelated purchaser for $800,000. He paid a realtor a 5 percent commission. Mr. Magarian is planning on retiring soon and will eventually sell the business.

1. Write a short tax research memo describing the correct tax treatment related to the facts above. Be sure to cite your primary sources properly and use the proper tax research memo format