Tai-GA has been successful and Daves business projections have been substantially met. Based on a net income multiplier of 10:1, Tai-Ga is now worth $100 million.

Andy has become seriously ill and wants to sell his stock and withdraw from the business. Two persons have expressed interest in buying Andys stock, but issuing new stock is also a possibility.

One person is the companys CFO, Brian Bolton. Brian came on board about six months after Tai-Ga commenced operations and has been instrumental in managing the financial aspects of the companys explosive growth. Brian has expressed interest in acquiring up to 2% ownership in Tai-Ga via compensatory stock options.

The other investor is Acme Manufacturing, one of Tai-Gas major suppliers: They wish to acquire up to 10% ownership. They require your input on the best way to approach the restructuring. Over the last five years, Tai-Ga's total net income has amounted to $17.5 million after reasonable salaries were paid out to the owners over the years. Of that $17.5 million, $5 million has been invested in inventory and other operating assets.

The remainder ($12.5 million) is in cash. The owners have expressed interest in distributing $2 million of the cash in some fashion, and they want you to consider that in your memo. The remainder of the cash will be retained in the business to fund future growth.

The current owners' stake in the company are as follows: Carrie, 50% Dave, 20% Naomi, 5% Andy, 25%

A.) Tai-Gas options and your recommendation for adding Brian and Acme as new owners. Justify your recommendation with a discussion of relevant tax law and regulations.

B.)The capital structure (debt vs. equity) of your restructuring recommendation. Justify your recommendation with a discussion of relevant tax law and regulations.

C.) Calculate the Tax Costs AND Tax Benefits of your recommendation for the individual taxpayers and the entity.