Everything should be in the prompt and more importantly, the document I attached. If you need access to any tax research services,

ACCT 561T TAXATION OF CORPORATIONS AND THEIR SHAREHOLDERS

FALL 2019 CASE STUDY

The following case study research paper is due Friday, December 13 at 5:00 PM PST. No exceptions. The paper is an individual assignment and not a group project and each student is expected to work independently. Each student must prepare an in-depth analysis based on the facts noted below, including relevant citations. The solution should be presented in a memorandum or “white paper” format, be typed, and generally be between 2 and 4 pages single spaced with 1” margins, not including footnotes / exhibits . Students must use correct citation formats where appropriate. Failure to cite sources, not doing your own research and/or copying research from a research service (e.g., CCH, BNA, RIA, etc.) is considered plagiarism and is a violation of the University’s Student Honor Code. DO NOT quote verbatim from or basically repeat what is in the materials. DO pay attention to spelling and grammar. DO describe the concepts and issues in your own words. DO cite relevant sources when providing conclusions that are considered primary or secondary authority. Investopedia, articles on the internet, the textbook, etc. do not qualify. DO wrap it up at the end with a conclusion that addresses the client’s concerns.

BROWN BROTHERS CONSTRUCTION INC.

Brown Brothers Construction Inc. (BBC) is a calendar year, accrual basis C corporation. Its principal business is building commercial buildings. BBC has a single class of voting common stock outstanding. The 1,000 outstanding shares are owned as follows: Number Of Shares Rob Brown 300 Rich Brown (Rob Brown’s Brother) 250

Speedy Brown (Rob Brown’s Son) 100 Dick Brown (Father of Rob & Rich Brown) 100 Alyssa Brown Curtis (daughter of Rob Brown) 100 Brown family trust 100 R & R Brown Investments 50 Total shares 1000

Brothers Rob and Rich Brown are equal general partners in R & R Brown Investments. R & R Brown Investments has owned 50 shares of BBC stock for 15 years but has no other assets. Rob has an option to buy 5 of Rich’s shares. Rob and his wife Kristine Brown established the Brown family trust in 2005. First National Bank of Chandler is the independent trustee and Kristine’s & Rob’s aged parents are the only beneficiaries. (This is not a grantor trust for Federal tax purposes.) Rich Brown is President and Rob Brown is Chairman of the Board of BBC. Speedy and Alyssa Brown are employees of the corporation, and earn substantial salaries. During the past several years, Rob Brown has become less interested in involving himself in the corporation’s business. His disinterest has resulted in considerable friction among the family members. After extensive and sometimes bitter discussion, all of the shareholders have agreed that it would be in the best interest of the corporate business if (1) Rob immediately resigns as Chairman of the Board, although he will be allowed to remain an honorary member of the board, and (2) BBC redeems his 300 shares of stock in the corporation. Rob has a tax basis in his 300 shares of $565,000. The redemption is tentatively scheduled to take place on December 31, 2019. BBC will pay $200,000 to Rob on the date of the redemption and finance the remaining redemption by issuing a 15-year installment note to Rob in the amount of $2,400,000. $2,600,000 is the independently appraised fair market value of his shares. BBC will make equal annual principal payments of $160,000, the first payment to be made on December 31, 2020. The note will provide for 5 percent simple interest per annum on the unpaid balance payable every December 31st.

As of December 31, 2018, BBC had accumulated earning and profits of $2,480,000. Pro rata cash distributions for 2019 are expected to total $180,000. The corporation’s projected income statement for 2019 is below. Rob refuses to commit to the terms of the redemption until he fully understands and can accept the tax consequences to him. Required The Brown family has retained you to determine the tax consequences to both Rob and BBC of the proposed redemption. The continuing shareholders particularly want to know the amount of BBC’s accumulated earning and profits immediately after the redemption. Be as specific as possible in responding to their questions, and provide suggestions and/or alternatives that might result in more favorable tax consequences to the parties involved.

Brown Brothers Construction, Inc.

Projected Income Statement For Year Ending December 31, 2019

Revenues from sales $5,555,143 Cost of sales 3,500,476 Gross Profit from Sales 2,054,667 Muni Bond Income 2,000,000 Total Income $4,054,667 Deductions: Salaries and wages $ 1,988,000 Interest on business debt 65,450 Business taxes (payroll, state and local) 240,000 Operating expenses 350,000 Charitable contributions 200,000 $2,843,450 Net income before tax $ 1,211,217 Assume a federal tax rate of 21% and no state taxes