Tax Research Memo

ACCT 6353 CASE for FALL 2015

Facts:

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 $1,000,000 (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 $800,000 several years ago. The FMV is currently $500,000.

3. Thomas and Robert approach Jeff about the following business proposition: the restaurant and the land are contributed to a new corporation. Each gets 1/3 of the stock.

  FMV                BASIS

                        Restaurant         $1,000,000          $350,000

            Vacant Lot          $500,000           $800,000

$1,500,000 $1,150,000

No Step down in basis is needed because the aggregate FMV is greater than the aggregate Basis for the property transfered

FMV of Stock = $1,500,000/3 = $500,000 for each Thomas, Robert, Jeff

Thomas Robert Jeff

Realized Gain (Loss) $300,000 $350,000 (300,000)

Recognized Gain (Loss) -- -- --

Basis in Stock Received $200,000 $150,000 $800,000

Adjusted Basis of Restaurant:                              $350,000

+ Gain Recognized by Transferor:                     + $           0

 - Adjustment for loss property (if required):      - $           0

= Corporation’s Basis in Restaurant:                 = $350,000

Adjusted Basis of Vacant Lot:                              $800,000

+ Gain Recognized by Transferor:                     + $           0

 - Adjustment for...