than The Answers! 1. Maddie, Hayden, and Addyson are going to set up MHA Associates. Maddi- will invest a building (Fair Market Value $200,000, basis $50,000) for a 40% interest in capital and income, Hayden will invest machines (Fair Market Value $150,000, basis $10,000) for a 30% interest in capital and income, and Addyson will invest $150,000 cash for a 30% interest in capital and income. A few years later when MHA liquidates, the building is worth $500,000 and the machines are worth $150,000. Maddie, Hayden, and Addyson each get their % of ownership (i.e., 40%, 30%, 30%) at liquidation. REQUIRED: A. Why does Addyson get a 30% interest for her investment? B. If MHA is a Corp, does it qualify under $351? C. How much gain is there and what is the basis) at set up (and to whom) if MHA is: a. A partnership? b. An S Corp? C. AC Corp? D. How much gain is there on the assets (not the investment) at liquidation (and to whom) if MHA is: a. A partnership? b. An S Corp? Building Machines C. AC Corp? Building Machines E. If MHA is a C Corp, how could the organization of the corporation be changed (without changing the economic substance of the organization) to not qualify under $351? F. How much gain is there at set up (and to whom) if you do the suggestions from Part E? Maddie Hayden Addyson G. MHA is a C Corporation. How much gain is there on the assets (not the investment) at liquidation (and to whom) if you do the suggestions from Part E? Building Machines 2. Refer to #1. Over a number of years, MHA earns $2,000,000. Maddie has guaranteed distributions (or salaries) of $200,000, Hayden has guaranteed distributions (or salaries) of $150,000, and Addyson has guaranteed distributions (or salaries) of $150,000. REQUIRED: A. How much income is taxable to Maddie, Hayden, and Addyson (Not including any gain or loss at set up or liquidation) if MHA is a(n): Maddie Hayden Addyson a. Partnership a. S Corporation? b. C Corporation? B. Suppose MHA pays a dividend (or distribution) of $400,000 to Maddie, $300,000 to Hayden, and $300,000 to Addyson. How much income is taxable to Maddie, Hayden, and Addyson and what is the character of the income if MHA is a(n): Maddie Hayden Addyson a. Partnership? b. S Corporation? C. C Corporation? Maddie Hayden Addyson 3. Refer to #1 and #2. Explain to Maddie, Hayden, and Addyson what kind of organization they should elect for tax purposes. than The Answers! 1. Maddie, Hayden, and Addyson are going to set up MHA Associates. Maddi- will invest a building (Fair Market Value $200,000, basis $50,000) for a 40% interest in capital and income, Hayden will invest machines (Fair Market Value $150,000, basis $10,000) for a 30% interest in capital and income, and Addyson will invest $150,000 cash for a 30% interest in capital and income. A few years later when MHA liquidates, the building is worth $500,000 and the machines are worth $150,000. Maddie, Hayden, and Addyson each get their % of ownership (i.e., 40%, 30%, 30%) at liquidation. REQUIRED: A. Why does Addyson get a 30% interest for her investment? B. If MHA is a Corp, does it qualify under $351? C. How much gain is there and what is the basis) at set up (and to whom) if MHA is: a. A partnership? b. An S Corp? C. AC Corp? D. How much gain is there on the assets (not the investment) at liquidation (and to whom) if MHA is: a. A partnership? b. An S Corp? Building Machines C. AC Corp? Building Machines E. If MHA is a C Corp, how could the organization of the corporation be changed (without changing the economic substance of the organization) to not qualify under $351? F. How much gain is there at set up (and to whom) if you do the suggestions from Part E? Maddie Hayden Addyson G. MHA is a C Corporation. How much gain is there on the assets (not the investment) at liquidation (and to whom) if you do the suggestions from Part E? Building Machines 2. Refer to #1. Over a number of years, MHA earns $2,000,000. Maddie has guaranteed distributions (or salaries) of $200,000, Hayden has guaranteed distributions (or salaries) of $150,000, and Addyson has guaranteed distributions (or salaries) of $150,000. REQUIRED: A. How much income is taxable to Maddie, Hayden, and Addyson (Not including any gain or loss at set up or liquidation) if MHA is a(n): Maddie Hayden Addyson a. Partnership a. S Corporation? b. C Corporation? B. Suppose MHA pays a dividend (or distribution) of $400,000 to Maddie, $300,000 to Hayden, and $300,000 to Addyson. How much income is taxable to Maddie, Hayden, and Addyson and what is the character of the income if MHA is a(n): Maddie Hayden Addyson a. Partnership? b. S Corporation? C. C Corporation? Maddie Hayden Addyson 3. Refer to #1 and #2. Explain to Maddie, Hayden, and Addyson what kind of organization they should elect for tax purposes