Marci and Jennifer each own 50% of the stock of Lavender, a C corporation. After each of them is paid a "reasonable" salary of $150,000, the taxable income of Lavender typically is about $800,000.
The corporation is about to purchase a $2 million shopping mall ($1,500,000 allocated to the building and $500,000 allocated to the land). The mall will be rented to tenants at a net rental rate (including rental commissions, depreciation, etc.) of $600,000 annually. Marci and Jennifer will contribute $1 million each to the corporation to provide the cash required for the acquisition.
Their CPA has suggested that Marci and Jennifer purchase the shopping mall as individuals and lease it to Lavender for a fair rental of $400,000. Both Marci and Jennifer are in the 32% tax bracket. The acquisition will occur on January 2 next year. Determine whether the shopping mall should be acquired by Lavender or by Marci and Jennifer in accordance with their CPA's recommendation. Depreciation on the shopping mall for the year is $37,000.