Cool Touch Cookware (CTC) has been in business for about 10 years now. Dawn and Linda are each 50 percent owners of the business. They initially established the business with cash contributions. CTC manufactures unique cookware that remains cool to the touch when in use. CTC has been fairly profitable over the years. Dawn and Linda have both been actively involved in managing the business. They have developed very good personal relationships with many customers (both wholesale and retail) that, Dawn and Linda believe, keep the customers coming back.
On September 30 of the current year, CTC had all of its assets appraised. Below is CTC's balance sheet, as of September 30, with the corresponding appraisals of the fair market value of all of its assets. CTC has several depreciated assets. CTC uses the hybrid method of accounting. It accounts for its gross margin-related items under the accrual method and it accounts for everything else using the cash method of accounting.

*CTC uses the LIFO method for determining the adjusted basis of its inventory. Its basis in the inventory under the FIFO method would have been $110,000.
**In addition, Dawn and Linda had the entire business appraised at $1,135,000, which is $200,000 more than the value of the identifiable assets.
From January 1 of the current year through September 30, CTC reported the following income:
Ordinary business income:..........................$530,000
Dividends from XYZ stock:.........................$12,000
Long-term capital losses:....................... $15,000
Interest income:.................................. $ 3,000
Dawn and Linda are considering changing the business form of CTC.
Required:
a. Assume CTC is organized as a C corporation. Identify significant tax and nontax issues associated with converting CTC from a C corporation to an S corporation.
b. Assume CTC is organized as a C corporation. Identify significant tax and nontax issues associated with converting CTC from a C corporation to an LLC. Assume CTC converts to an LLC by distributing its assets to its shareholders who then contribute the assets to a new LLC.
c. Assume that CTC is a C corporation with a net operating loss carryforward as of the beginning of the year in the amount of $2,000,000. Identify significant tax and nontax issues associated with converting CTC from a C corporation to an LLC. Assume CTC converts to an LLC by distributing its assets to its shareholders who then contribute the assets to a new LLC.

Adjusted Tax Basis Assets FMV Accounts receivable Inventory* Equipment Investment in XYZ stock Land (used in the business) Building $150,000 20,000 90,000 120,000 40,000 80,000 200,000 $150,000 15,000 300,000 100,000 120,000 70,000 180,000 Total Assets $700,000 $935,000** Liabilitie:s s payable Bank loan Mortgage on building Equity Total liabilities and equity $40,000 60,000 100,000 500,000 $700,000