The Turnaround LLC was formed several years ago. It incurred losses for several years, reducing many of its members' bases in their interests to zero. However, the business recently obtained some new and promising contracts, and there is an expectation of profits in the coming years. Turnaround then admitted several new members, who each made capital contribu- tions for their interests. The new owners anticipate that it will be necessary to reinvest any profits back into the business for some time. As there no longer will be losses to pass through and any double taxation of profits will be delayed for some time, the owners of Turnaround are considering converting the business to a C corporation. The business controls the following assets. There is no 754 election in effect. Cash PP&E Customer contracts Fair Market Value $ 500,000 500,000 1,000,000 Adjusted Basis $500,000 500,000 -0- The original owners of Turnaround now hold a 50% capital and profits interest. They have come to you for advice regarding the potential tax consequences of the conver- sion for them, as well as for the new corporation. Partial list of research aids: Rev. Rul. 70-239, 1970-1 C.B. 74. Rev. Rul. 84-111, 1984-2 C.B. 88. Rev. Rul. 2004-59, 2004-24 L.R.B 1050. Treas. Reg. $301.7701-3(g)i). Research Problem