Tax Research Case #1

Facts

Murr, Joe, Sal and Quinn decide to form a corporation, Impractical Jokers, Inc. The company will manufacture and sell numerous products including the Cantenna and the 47 Hour Energy Bar. Murr, Sal and Quinn all contribute cash to Impractical Jokers, Inc. and they all receive 100 shares in return. Joe contributes cash and the patent for the 47 Hour Energy Bar and receives 100 shares of stock currently plus a right to receive an additional 25 shares. The right to receive the additional 25 shares is contingent on the patent controlled by Joe. Because the patent license is pending, the patent cannot be valued for several months.

Joe is confused and is seeking your expert tax advice. How should Joe treat the 100 shares now and the additional 25 shares in the future for tax purposes?

Assignment

Write a letter to Joe Gatto in the required memo format with your answers to how Joe should treat the 100 shares now and the additional 25 shares in the future for tax purposes. Joes address is 1234 Larry Road, New York, New York 10001.