Your client, Cara Ramos, is forming a T-shirt business, Equitees, with three of her colleagues. Each has something to contribute to the business. Cara is contributing property (land) that has a debt (mortgage) on it, encumbered property. She will receive a 30% stock of the company. It is important to note, since the land still has a mortgage on it, the business will be assuming this existing mortgage. Michael is contributing cash to the business and will receive a 30% stock. Cathy is contributing property (machinery). The property, while without debt, has been used in her own previous business and has depreciated in value over the years. Cathy will receive 30% equity in return for her contribution. Nate doesn’t have anything to contribute, so he is going to perform services (managing the business) for the corporation. On the open market, his services are worth approximately $50,000 a year. In return, he will not receive compensation but 10% equity instead. The group’s lawyer is advising them that their form of corporation should be a C Corporation, to best position themselves for potential future sale or for a venture capital investor. The lawyer will handle the legal aspect of putting together the corporation, everything from creating bylaws to filings. In total, the company needs about $500,000 to get the business off the ground. Cara has come to your manager to better understand the tax implications of each shareholder and of the corporation. Your manager has asked you to document the details of the tax implications at the shareholder and corporate level upon formation. Create an Excel workbook showing tax results of transfers by shareholder, including the basis of each shareholder investment and the basis of assets to the corporation. Cara: Desired Own %- 30% Type of Property - Land, mortgaged FMV of $200,000 ADJUSTED BASIS OF $80,000; (Subject to Mortgage of 50,000) Loans to Corporation -$100,000 Cathy: Desired Own %- 30% Type of Property Equipment FMV of $150,000 ADJUSTED BASIS OF $100,000 Loans to Corporation -$100,000 Michael: Desired Own %- 30% Type of Property -Cash FMV of $150,000 ADJUSTED BASIS OF $150,000 Loans to Corporation -$100,000 Nate: Desired Own %- 10% Type of Property - None (B) FMV of $0 ADJUSTED BASIS OF $0 Loans to Corporation -$50,000 Note: Property is being contributed and the corporation will be assuming the existing mortgage. Nate does not have any property to contribute. Instead, he will provide services in the form of being the Manager of the business. On the open market, his services are worth approximately $50,000 per year. *As you can see by the table, the company needs a total of about $500,000 to get the business off the ground. Part 1 - Excel Workbook of Shareholder and Corporate Basis For Part 1, you will determine the basis at both the corporate and shareholder levels. In an Excel workbook, create two tabs, one for shareholders and one for the corporation. On the Shareholder tab, calculate the following areas for each shareholder: Fair market value (FMV) of stock received Adjusted basis of stock received Applicable basis code section Realized gain (income) on transfer Recognized gain (income) on transfer Gain (income) deferred, if present On the Corporation tab, calculate the following for the corporation that is receiving the property: FMV of property received Adjusted basis of property received Applicable basis code section Realized gain (income) on property Recognized gain (income) on property Gain (income) deferred, if present

As a tax professional, I can provide you with guidance on how to structure the Excel workbook and what calculations and tax implications to consider for each shareholder and the corporation upon formation. However, I cannot create the actual Excel workbook in this text-based platform. Below is an outline of how you can structure your Excel workbook: **Shareholder Tab:** For each shareholder (Cara, Cathy, Michael, Nate), create columns for the following: 1. Name of Shareholder 2. Desired Ownership Percentage 3. Type of Property Contributed 4. Fair Market Value (FMV) of Property Contributed 5. Adjusted Basis of Property Contributed 6. Debt on Property (if applicable) 7. FMV of Stock Received 8. Adjusted Basis of Stock Received (generally the same as the adjusted basis of property contributed, except when debt exceeds basis) 9. Applicable Basis Code Section (typically IRC § 351 for non-recognition of gain or loss on transfer) 10. Realized Gain (Income) on Transfer (FMV of property less adjusted basis) 11. Recognized Gain (Income) on Transfer (generally none under § 351 unless debt relief exceeds basis) 12. Gain (Income) Deferred, if present (none if § 351 applies) **Corporation Tab:** For the corporation, create columns for the following: 1. Type of Property Received 2. FMV of Property Received 3. Adjusted Basis of

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