Overview: Transactions involving stock or ownership interest can result in


Transactions involving stock or ownership interest can result in recognition of capital gain for both individual taxpayers and business entities, and

they can have a variety of nontax consequences. Individual taxpayers must consider these consequences when choosing whether to buy or sell stock or

ownership interest. When choosing to make a distribution, issue new stock, or engage in a redemption of previously issued stock, business entities must often

consider both the tax and nontax consequences for the entity itself and individual taxpayers.

For the third milestone of your final project, you will consider the tax and nontax consequences of transactions involving stock or ownership as you advise Tai-Ga

on restructuring the entity five years after formation of the business. Your goal is to devise a plan that results in maximizing tax benefits and minimizing tax costs

for all parties concerned, including Andy (who must leave the business due to illness), two potential new owners, and the remaining original owners.


Read the Milestone Three scenario excerpt below—you can also access the full final project scenario—that explains the concerns and needs of the

owners of Tai-Ga with regards to restructuring, and create a professional memorandum that recommends a restructuring plan for the benefit of all stakeholders.

Specifically, the following critical elements must be addressed:

 Compose a memorandum that includes an executive summary and addresses the following:

o Whether a change in the form of the entity is needed to facilitate the restructuring (If no change is needed, state so in the recommendation.)

o Andy’s options and your recommendation for ending his ownership interest with Tai-Ga

o Tai-Ga’s options and your recommendation for adding Brian and Acme as new owners

o The capital structure (debt vs. equity) of your restructuring recommendation

 Justify your recommendation with a discussion of relevant tax law and regulations.

 Calculate the tax costs of your recommendation for the individual taxpayers and the entity.

 Calculate the tax benefits of your recommendation for the individual taxpayers and the entity.


The third meeting will be five years after the first two meetings. The business has been successful and Dave’s business projections have been substantially met.

Based on a net income multiplier of 10:1, Tai-Ga is now worth $100 million. Andy has become seriously ill and wants to sell his stock and withdraw from the

business. Two persons have expressed interest in buying Andy’s stock, but issuing new stock is also a possibility. One person is the company’s CFO, Brian Bolton.

Brian came on board about six months after Tai-Ga commenced operations and has been instrumental in managing the financial aspects of the company’s

explosive growth. Brian has expressed interest in acquiring up to 2% ownership in Tai-Ga via compensatory stock options. The other investor is Acme

Manufacturing, one of Tai-Ga’s major suppliers: They wish to acquire up to 10% ownership. They require your input on the best way to approach the restructuring.

Over the last five years, Tai-Ga’s total net income has amounted to $17.5 million after reasonable salaries were paid out to the owners over the years. Of that

$17.5 million, $5 million has been invested in inventory and other operating assets. The remainder ($12.5 million) is in cash. The owners have expressed interest  in distributing $2 million of the cash in some fashion, and they want you to consider that in your memo. 

The remainder of the cash will be retained in the business to fund future growth. 

Rubric Guidelines for Submission: 

Your paper should be a 3- to 5-page Microsoft Word document (excluding the cover page and reference pages), with double spacing, 12-point Times New Roman font, one-inch margins, and at least three sources cited in APA format. 

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