27. LO.5 Marci and Jennifer each own 50% of the stock of Lavender, a C corporation.

After each of them is paid a “reasonable” salary of $125,000, the taxable income of Lavender is normally around $600,000. The corporation is about to purchase a $2,000,000 shopping mall ($1,500,000 allocated to the building and $500,000 allocated to the land). The mall will be rented to tenants at a net rent income (i.e., includes rental commissions, depreciation, etc.) of $500,000 annually. Marci and Jennifer will contribute $1,000,000 each to the corporation to provide the cash required for the acquisition.

Lavender’s CPA has suggested that Marci and Jennifer purchase the shopping mall as individuals and lease it to Lavender for a fair rental of $300,000. Both Marci and Jennifer are in the 32% tax bracket.

Determine whether the shopping mall should be acquired by Lavender, or by Marci and Jennifer, in accordance with their CPA’s recommendation.