Big Bubbas Brewing Company - Bill, Bob, Bud, Sue and Jane Case Study - Taxation Assignment Help

Assignment Task:

Bill, Bob, Bud, Sue and Jane decided to form a corporation, Big Bubbas Brewing Company, each will end up with 2,500 shares.  Each individual gave the following:

Bill gave $100,000 in cash and brewing equipment with an FMV of $100,000 and his basis was $10,000. Bob gave a building and land with an FMV of $400,000, his basis in the property was $70,000 and the property had a loan of $200,000.

Sue gave a food truck with an FMV of $60,000, her basis in the truck was $100,000.  In addition, she gave $10,000 of legal services and $130,000 of cash. Jane gave additional brewing equipment with an FMV of $300,000, her basis was $25,000 and the equipment had a loan of $100,000. Bud gave A/R of $100,000, he is a cash basis taxpayer and $100,000 in cash. All loans were transferred to the corporation.  Please advise what are the tax ramifications to the new shareholders and the corporation, using code sections and numbers.  

The shareholders ask if there are any gains from the transactions, is there a way to remove the gains?

In Year 2, the company had earnings and profits from Year 1 and Year 2 of  $560,000.  The company paid out a distribution of $400,000, pro-rata to the shareholders in cash. Please advise the tax ramifications to the corporation and shareholders. The third part of the exam deals with partial and full liquidations of a corporation.  Again, I am looking for an in-depth discussion, including the use of code sections, cases and other relevant primary authority. (This problem is worth 175 points)

The same shareholders as above, with the same basis in their shares as above for the use in this problem.  In Year 3, the company had accumulated E&P of $160,000 and current E&P of $100,000.  On December 31, Bill redeemed 2,000 of his shares for $150.00 per share.  On March 31, the company made a distribution to each shareholder of $50,000 and then on September 30, the company made another $20,000 distribution to each shareholder.  On June 30, Sue sold ½ of her shares to Mary Anne for $150,000.

Please discuss the tax ramifications for Year 3 to the shareholders and corporation. In Year 4, the company was sold all its assets $1,000,000, the company’s balance sheet looked as follows:

All assets and liabilities were transferred as part of the asset sale.   Please explain the tax ramifications to Big Bubba’s Brewing Company, its shareholders and the acquiring corporation.  The proceeds of the sale were distributed pro-rata based upon stock ownership.  The company’s corporate tax rate is 21% and there are no NOLs or capital loss carryforwards.  Please include numbers.

Would the shareholders of Big Bubba rather sell the stock for $800,000?

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