Question: 1. Thomas and Robert are partners in a small successful restaurant. They want to expand but need a new location. They think their business has a FMV of $2,000,000 (and has a basis of $200,000 to Thomas and a basis of $150,000 to Robert).
2. Jeff is a real estate broker and investor. He normally buys real estate and sells it quickly. He is fully licensed as a real estate broker in Texas. Jeff has a vacant lot that he paid $1,500,000 several years ago. The FMV is currently $1,000,000.
3. All three create JPJ, Inc with one third ownership each.
In year one they consider the following:
4. The corporation will distribute out to Jason a part of the parking lot (of the old location). The FMV is $200,000 and the basis to the corporation is $75,000. Jason will contribute the new land with a FMV of 150,000 plus $50,000 in cash.
5. Separately, they want to pay a distribution of $25,000 to each shareholder in cash. The EP balance is zero for accumulated and $40,000 for current.
Assignments: What is the tax income consequences idea #4?
What is the income tax consequences idea #5?
Is there a better economic structure that will give the three people the result they desire? If so what is it and defend the idea?