Tax Memo E

Tax Research Memo
Sample Format
Your Firm
Your Town and State
Date
Relevant Facts
Specific Issues
Conclusions
Support
Tax Memo E
Instructions:
This is an individual assignment. The memo should not exceed two pages and students
should use the tax memo template provided. However, the answer should be a full 2 pages
(double spaced, times new roman 12pt., 1-inch margins) Do not repeat the question in the
answer. Each memo must include an explanation of the relevant code sections, regs and/or
other relevant controlling authority such as case law. Don’t just cite the rules or cases,
explain them and their application to the specific facts in the questions. Any memo with a
similarity score exceeding 25% on Turnitin will be rejected subject to the professor’s
review and sole discretion. All tax memos are due on Saturday of each week assigned.
Questions:
Warren Buffoon, Bill Yates, Jeff Blaze, Mark Stuckerberg and Ion Must formed the Rocket to
Mars Corporation (RMC). Each contributed $10 million in exchange for 20% of RMC’s stock.
None were dealers in stock and held their respective investments as a capital asset. After a
shareholder dispute over who would pilot the next rocket ship into outer space, the shareholders
decided to liquidate the company. RMC adopted a plan of complete liquidation.
RMC distributed assets pursuant to the plan with a basis to the corporation of $50 million and a
fair market value of $125 million. Each shareholder received a pro rata share in the distribution.
At the time of the liquidation, RMC had $125 million in earnings and profits.
1. What are the tax consequences to RMC upon liquidation?
2. What are the tax consequences to the shareholders upon liquidation?
Assume the same facts except, however:
3. How would the answers to 1 and 2 change if the assets distributed in liquidation had a
FMV of $30 million instead of $125 million?
Assume the same facts except instead of distributing the assets, RMC sold the assets to a third
party:
4. The assets are sold for $30 million, and the cash is then distributed pro rata to the 5
shareholders. What are the tax consequences to both RMC and to the shareholders?
5. How would the answers in 1 and 2 change if the shareholders took the property in
liquidation subject to a $100 million mortgage?