X Corp was formed in Michigan in 1990 as a C corporation.

X Corp has 2 shareholders - husband and wife - Shareholder A and Shareholder B. A and B are Michigan residents.

A and B have 2 adult children, Q and R, who are currently working at X Corp.

X Corp has net assets for U.S. federal income tax purposes of $5M, capital stock of $500,000, and retained earnings of $4.5M.

A and B have a collective tax cost basis in their X Corp stock of $500,000.

The appraised fair market value of X Corp is currently $25M.

A and B would like to retire in the next 5 years or so and would like to see Q and R take over the X Corp business at some point.

A, B, and X Corp have a great relationship with Hoops Bank which has indicated it is willing to help A and B in any way it can.

A and B hire you, their longtime tax advisor, to explore their options for having Q and R take over the X Corp business at some point.

A and Bs primary concern is income taxes. However, A and B are also concerned about transfer taxes.

Please answer the following questions for A and B:

1. What are A and Bs options for having Q and R take over the X Corp business at some point?
2. Identify the positives and negatives of each option.
3. Identify all tax issues you can think of and the applicable tax sections and/or authorities.