Your accounting firm has done the audit and tax work for the Peerless family and their business entities for 20 years. Approximately 25% of your accounting and tax practice billings come from Peerless family work. Peerless Real Estate Corporation owns land and a building (MACRS property) having a $4.5 million FMV and a $1.0 million adjusted basis. The corporation owes a $1.3 million mortgage balance on the building. The corporation used substantial leverage to acquire the building so Myron Peerless and his brother Mark Peerless, who are equal shareholders in Peerless Real Estate, each have only $200,000 adjusted bases in their stock. Cash flows are good from the building, and only a small portion of the annual profits is needed for reinvestment in the building. Myron and Mark have decided to liquidate the corporation to avoid the federal and state corporate income taxes and continue to operate the business as a partnership. They want the MM Partnership, which has Mark and Myron equally sharing profits, losses, and liabilities, to purchase the building from the corporation for $400,000 cash plus their assumption of the $1.3 million mortgage. Mark knows a real estate appraiser who, for the right price, will provide a $1.7 million appraisal. Current corporate cash balances are sufficient to pay any federal and state income taxes owed on the sale of the building. Mark and Myron each would receive $200,000 from the corporation in cancellation of their stock.

Required: Prepare notes on the points you will want to cover with Myron and Mark Peerless about the corporate liquidation and the Peerless desire to avoid federal and state corporate income taxes at your meeting tomorrow.