Thad Carlston has been in the process of doing some estate planning for several years now. In 1997, he started

Thad Carlston has been in the process of doing some estate planning for several years now. In 1997, he started

Question:

Thad Carlston has been in the process of doing some estate planning for several years now.  In 1997, he started a corporation, which he named Carlston, Inc.  Twelve years later, the corporation had grown significantly and Thad realized that he needed to diversify his holdings by bringing in another shareholder, so he sold half of his 1,000 common stock shares to Charlotte Johnson, an unrelated party. After the sale, Thad still owns 500 voting common stock shares, and his wife Pam owns 1,000 nonvoting preferred stock shares (not Sec. 306 stock). Thad’s wife is the vice president of the company and a member of the board of directors of Carlston, Inc.  Once his daughter, Jennifer, was old enough, she commenced working as an employee in the business.

Now in 2020, Thad and his wife have completed some estate planning.  As part of the planning, Carlston, Inc. will redeem all 1,000 shares of Carlston, Inc.’s nonvoting preferred stock in exchange for $500,000 cash.  Carlston, Inc. will also redeem 200 shares of Thad’s voting common stock.

As Carlston, Inc.’s accountant, Thad has asked you to research whether this transaction (both redemptions) will qualify as an exchange under Sec. 302(a).

In 2015, after Jennifer graduated from college with her degree in business, Thad and Jennifer started an LLC called TJC, LLC, a company formed to act as a distributor for bird feeders.  Now in 2020, Thad and Jennifer decide that they would like to join forces with one of their major rivals in town, The Bird Cage, LLC.   They will form a new entity called TJC Birds and Such, Inc.  As part of the plan, TJC LLC will transfer in its assets on January 1, 2021 in exchange for 51% of TJC Birds and Such, Inc.’s common stock.  The Bird Cage, LLC is in the process of settling some business matters, so it will not transfer its assets in exchange for the other 49% of the stock until May 1, 2021.  The transfers are part of a written plan to organize as a new entity.  Thad and the owners of The Bird Cage, LLC are a bit nervous about the transaction, so they would like you to verify that both transfers of the assets from TJC, LLC and The Bird Cage, LLC will be treated as a tax-free exchange pursuant to Sec. 351.

You are Thad Carlston’s outside tax accountant. Respond to his questions posed in the scenario above.  In a tax memo format to Thad with your conclusions.
Structure your memo as follows:
Facts: Succinctly state the facts relevant to the resolution of the taxpayer’s issue. Doing so involves reviewing the facts to include only those relevant to answering the question(s) at issue in your memorandum.
Issue: State the question or questions your memorandum seeks to answer. If possible, present it in a single sentence (e.g., “Will Mr. Smith have to include the value of the property in income?”). Most (if not all) of the memoranda you will be assigned will present a single, overarching question. Granted, there may be multiple issues that you have to analyze to answer this question, but all of them go toward answering the larger question –such as whether the taxpayer has to include the value of some property in income.
Conclusion: State the answer to the “Question(s) Presented” as clearly and succinctly as possible –again, preferably in a single sentence. (For example, your “Short Answer” to the “Question Presented” answer above might be, “Mr. Smith will have to include the value of the property in income.”).
Analysis: This is the substantive portion of your memorandum and is worth the majority of the points on the assignment. It is where you present all of the analysis that is required to support your “Short Answer.” In performing your analysis, you should use the general “IRAC” approach you have learned and utilized to date, although you will not have specific sections within the “Analysis” listed as “Issue,” “Rule,” “Analysis,” and “Conclusion.” Once you have identified the issue or issues that you have to resolve to answer the “Short Answer,” you will need to perform tax research to identify tax authorities to establish the controlling “rule” that resolves that issues. Your analysis for each of these issues should review these authorities and then apply them to the facts of the case to draw conclusions.
Note: When you are preparing your tax research memo, use each of the categories listed above as headings in your memo. This organization helps you steer the reader through your thought process in a logical progression. This format also ensures that you have completed the tax research process to formulate a supported, correct conclusion to your taxpayer’s issue.

Compose a four to five page length, size 12 font memo showing proper tax law citation and references. Note: Please remember that this memo must be rephrase except for properly cited rules or quotes. Please refer to your Sawyers and Gill text (inside cover) for proper tax law citation. Please note that you may NOT use your textbook as one of the research sources for your paper.  You should use CCH Answer ConnectLinks to an external site. and CCH Accounting ResearchLinks to an external site..

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Answer TO Thad Carlston FROM Your Name Tax Accountant DATE Date RE Tax Free Exchanges Facts Thad Carlston created Carlston Inc in 1997 and eventually sold half of the company s common stock to Charlot
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