Kim, Doug and Kelsey plan to start farming business together in Clinton, NY called New York Farmers. They would like your advice on on the types of business entities and the advantages and disadvantages of each. Kim and Doug will each own 40% of the business and Kelsey will own 20%. Kim will contribute cash of $400,000, Doug will contribute land with an FMV of $600,000 and an adjusted basis of $250,000. Kelsey will contribute services of $200,000. In addition, Doug receives $200,000 of cash. Kim, Doug and Kelsey have indicated that they would like to take distributions of profits from New York Farmers each year in addition to compensation. They plan to pay themselves compensation of $50,000 each and they project that New York Farmers will have $40,000 in profits each year that they would like to distribute based on their ownership percentages. The distributions are as follows: Adjusted Basis FMV Kim - Equipment $10,000 $16,000 Doug - Cash $16,000 $16,000 Kelsey - Cash $8,000 $8,000 Explain the tax treatment of property contributions from the shareholder/member/partner to each type entity upon formation, including a discussion of the basis the entity would take in the contributed property and the basis the shareholder/member/owner would have in the entity as a result of the contribution. Calculate Kim, Doug and Kelsey's basis in their ownership interest if they were part of a prearranged plan to incorporate New York Farmers as a C corporation. Calculate the basis the C corporation would take in the property contributed by Kim, Doug and Kelsey. Calculate the realized and recognized gain to Kim, Doug and Kelsey on their contribution to the C corporation (if any). Calculate Kim, Doug and Kelsey's basis in their ownership interest if they decided to form New York Farmers as a partnership. Calculate the basis the partnership would take in the property contributed by Kim, Doug and Kelsey. Calculate the realized and recognized gain to Kim, Doug and Kelsey on their contribution to the partnership (if any).

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