ACCT 540 Research Project 2FactsKen and Marilyn Hert started a business in 1998 in an S corporation form. Ken is 72 years old andMarilyn is 70. The business struggled for many years but has now become very profitable.The Herts have two children, Fred, age 46, and Jessica, age 43. The children worked in the business whilein high school and college but then pursued their own interests. Three years ago Ken and Marilynbecame increasingly concerned about the ownership succession plan for the business. After discussingthe issue with their kids, they decided to make a gift of 10% of the company to each of the children. SoKen now owns 40%, Marilyn 40 %, Fred 10%, and Jessica 10%. The gifts were necessary to induce the kidsto begin working in the business with the objective of eventually turning over ownership to the kids.Ken and Marilyn are now comfortable with the idea of retiring and turning the business over to Fred andJessica. They propose to redeem their shares so that the two children own 100% of the company. Thebusiness is valued at $11.2 Million. Ken and Marilyn will receive $8,960,000 for their 80% interest. Thecorporation produces sufficient cash flow that Ken and Marilyn believe that their shares can bepurchased over 12 years.Corporate AAA is $3,560,000. Ken and Marilyn each have a tax basis in their shares of $1,400,000.RequiredPrepare a memo to Ken and Marilyn that addresses the tax consequences of a redemption of theirshares. If you believe there are alternative structures, you should address those and explain theconsequences of the alternatives identified. Recall that you can only cite primary authorities.

Redemption of Shares in S Corporation A shareholder of a Subchapter S corporation may sell his or…

Required Prepare a memo to Ken and Marilyn that addresses the tax consequences of a redemption of their shares. If you believe there are alternative structures, you should address those and explain the consequences of the alternatives identified. Recall that you can only cite primary authorities.

Required Prepare a memo to Ken and Marilyn that addresses the tax consequences of a redemption of their shares. If you believe there are alternative structures, you should address those and explain the consequences of the alternatives identified. Recall that you can only cite primary authorities.

Accounting

27th Edition

ISBN:9781337272094

Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Chapter14: Long-term Liabilities: Bonds And Notes

Section: Chapter Questions

Problem 14.6CP

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