Reference no: EM13916997

In 2015, The Athens Corporation is considering selling investment land to the Hocking Valley Partnership for the land’s independently appraised FMV of $500,000. Athens Corporation purchased the land in 2005 for $600,000 cash. Andy Park is the largest shareholder in Athens Corporation; he owns 400 of 1,000 Athens Corporation’s shares outstanding. Andy’s sister, Rachel Park, owns 150 Athens Corporation shares, and various investors who are unrelated to Andy and Rachel own the remaining shares outstanding. Rachel is also a limited partner in Hocking Valley Partnership; she owns a 35% interest in Hocking Valley’s profits and capital. Rachel is not involved in any aspect of the management of the partnership. If Athens Corporation sells its land to Hocking Valley Partnership, can it recognize the $100,000 loss that it will realize on the sale? In 2015, Athens Corporation expects to have capital gains larger than $100,000 and marginal tax rate of 34% (the preferential long-term capital gain tax rates do not apply to Corporations).

1. What are the issues on the above transaction, and what are the relevant facts on those issues.

2. What are the relevant primary tax law authorities on the issue? Specify the authorities as detail as possible. (e.g. Section 1001(b)(2), not Section 1001)

3. Compare and evaluate the tax law authorities to the relevant facts above.

4. What is your conclusion and what would be the After-Tax Cash Flow for the land sale transaction in 2015?

 

5. You found additional information that Andy’s son, Seth Park, owns a 25% limited interest in Hocking Valley’s profits and capital. Would this change your conclusion above and why? If so, recalculate the After-Tax Cash Flow.