Relevant Facts:

Jeff owns a small successful restaurant. He wants to expand but needs a second location. His business has an FMV of $2,000,000 and has a basis of $500,000. The business is currently an LLC.

Thomas is a real estate broker and investor. He has a vacant lot that FMV is $1,000,000, and he paid $1,800,000 for it three years ago.

Specific Issues:

The two men want to determine the most advantageous scenario in which no one would recognize gain this year.

Two ideas are proposed:

1. Jeff approaches Thomas about the following business proposition: the restaurant and the land are contributed to a new corporation. Jeff gets 2/3s of the stock and Thomas gets 1/3s of the stock. What is the income tax consequences of this idea?
2. Thomas is not sure he likes that idea and instead offers the following (this occurs when Thomas is added to the new corporation):

The corporation will distribute out to Thomas a part of the parking lot (of the old location). The FMV is $300,000 and the basis to the corp is $75,000. Thomas will contribute to the new land for stock. What is the amount of stock should Thomas get in the corp? And what is the tax consequences of this idea?

3. Is there a better economic structure that will give the two people the result they desire? If so, what it is and defend the idea