g Research Problem 1. Turnaround LLC was formed several years ago. It incurred losses for several years, reducing many of its members' bases in their interests to zero. However, the business recently obtained some promising contracts, anticipating profits in the coming years if it can obtain some financing. It admitted new members who each made capital contributions for their interests. The owners anticipate it will be necessary to reinvest most of the profits back into the business for some time. Because there will no longer be losses to pass through and the double taxation of profits will be delayed for some time, the owners of Turnaround are considering converting the business to a C corporation. The business holds the following assets. There is no $ 754 election in effect. FMV Adjusted Basis Cash $ 500,000 $500,000 Property, plant, equipment 500,000 500,000 Customer contracts 1,000,000 -0- CHAPTER 15 Comparative Forms Of L The original owners of Turnaround, who now have a 50% capital and profits inter- est, have come to you for advice regarding the potential tax consequences of the conversion for them as well as for the new corporation. Partial list of research aids: Rev.Rul. 84-111. Rev.Rul. 2004-59. Reg. $ 301.7701-3(g)(i)