CURTIS BROTHERS BAKERY INC

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CURTIS BROTHERS BAKERY INC Curtis Brothers Bakery, Inc. (Bakery) is a calendar year, accrual basis C corporation. Its principal business is the baking and wholesale distribution of various bread and pastry products. Bakery has a single class of voting common stock outstanding. The outstanding shares are owned as follows. Number of shares Shareholder Darryl Curtis James Curtis Chazz Curtis, daughter of James Curtis Daniel Curtis, son of James Curtis Sean Curtis, daughter of James Curtis Curtis family trust D&J Curtis Investments, a partnership Total Shares Outstanding 350 300 100 100 100 200 50 1,200 Brothers Darryl and James Curtis are equal general partners in D&J Curtis Investments. The partners contributed Bakery stock to the partnership in 1999 for use as collateral for certain partnership debt. This debt was repaid long ago. James and his wife Hazel Curtis established the Curtis family trust in 2009. First National Bank of St Louis is the independent trustee, and the Curtis' various minor grandchildren are the only beneficiaries. The entity is not a grantor trust. D&J Cur(s Investments (50 sh) Darryl CurQs Darryl Cur(s (350 sh) James CurQs Chazz Cur(s (100 sh) James Cur(s (300 sh) Daniel Cur(s (100 sh) James CurQs Sean Cur(s (100 sh) Hazel CurQs Cur(s Family Trust (200 sh) CurQs Grandchildren Darryl Curtis is President, and James Curtis is Chairman of the Board of Bakery. Chazz, Daniel, and Sean Curtis all are employees of the corporation, and they receive substantial salaries. During the past several years, James Curtis has become less interested in involving himself in the corporation's business. James’ lack of interest has resulted in considerable friction between him and his three children. After an extensive and sometimes bitter discussion, all of the shareholders have agreed that it would be in the best interest of the corporate business if (1) James immediately resigns as Chairman of the Board, and (2) Bakery redeems his 300 shares of stock in the corporation. James holds a tax basis in his 300 shares of $1,000,000. The redemption tentatively is scheduled to take place on January 1, 2018. Bakery will finance the redemption in full, by issuing a 15-­‐year installment note to James Curtis in the amount of $3,600,000, the independently appraised fair market value of his shares. Bakery will make equal annual principal payments of $240,000, the first payment to be made on January 1, 2019. The note will provide for six percent simple interest per annum on the unpaid balance payable every January 1. Market rates of interest for similar debt is about four percent. Today is December 31, 2016, and Bakery reports $8,300,000 of accumulated earnings and profits. Pro rata cash dividends for 2017 are expected to total $200,000. The corporation's projected income statement for 2017 is attached. Due to the upheaval related to James’ “retirement,” E&P from Bakery’s operations for 2018 is assumed to be $50,000, all produced after the redemption occurs. Further, annual cash dividends to the remaining shareholders are suspended for 2018. 2017 Full opera(ng year for Bakery 2018 James resigns, redeems shares, takes note 2019 First payment on note James Curtis refuses to commit to the terms of the redemption until he fully understands and can accept the tax consequences to him. Therefore, the Curtis family has retained you to determine the tax consequences to both James Curtis and Bakery of the proposed redemption. The continuing shareholders particularly want to know the amount of Bakery's accumulated earnings and profits immediately before and after the redemption. Be as specific as possible in responding to the parties’ questions, and provide suggestions and/or alternatives that might result in more favorable tax consequences to those involved, including Bakery itself. PwC Case Studies in Taxation, © 2016, PwC, LLP Page 2 of 3 Curtis Brothers Bakery, Inc.

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CURTIS BROTHERS BAKERY INC Curtis Brothers Bakery, Inc. (Bakery) is a calendar year, accrual basis C corporation. Its principal business is the baking and wholesale distribution of various bread and pastry products. Bakery has a single class of voting common stock outstanding. The outstanding shares are owned as follows. Number of shares Shareholder Darryl Curtis James Curtis Chazz Curtis, daughter of James Curtis Daniel Curtis, son of James Curtis Sean Curtis, daughter of James Curtis Curtis family trust D&J Curtis Investments, a partnership Total Shares Outstanding 350 300 100 100 100 200 50 1,200 Brothers Darryl and James Curtis are equal general partners in D&J Curtis Investments. The partners contributed Bakery stock to the partnership in 1999 for use as collateral for certain partnership debt. This debt was repaid long ago. James and his wife Hazel Curtis established the Curtis family trust in 2009. First National Bank of St Louis is the independent trustee, and the Curtis' various minor grandchildren are the only beneficiaries. The entity is not a grantor trust. D&J Cur(s Investments (50 sh) Darryl CurQs Darryl Cur(s (350 sh) James CurQs Chazz Cur(s (100 sh) James Cur(s (300 sh) Daniel Cur(s (100 sh) James CurQs Sean Cur(s (100 sh) Hazel CurQs Cur(s Family Trust (200 sh) CurQs Grandchildren Darryl Curtis is President, and James Curtis is Chairman of the Board of Bakery. Chazz, Daniel, and Sean Curtis all are employees of the corporation, and they receive substantial salaries. During the past several years, James Curtis has become less interested in involving himself in the corporation's business. James’ lack of interest has resulted in considerable friction between him and his three children. After an extensive and sometimes bitter discussion, all of the shareholders have agreed that it would be in the best interest of the corporate business if (1) James immediately resigns as Chairman of the Board, and (2) Bakery redeems his 300 shares of stock in the corporation. James holds a tax basis in his 300 shares of $1,000,000. The redemption tentatively is scheduled to take place on January 1, 2018. Bakery will finance the redemption in full, by issuing a 15-­‐year installment note to James Curtis in the amount of $3,600,000, the independently appraised fair market value of his shares. Bakery will make equal annual principal payments of $240,000, the first payment to be made on January 1, 2019. The note will provide for six percent simple interest per annum on the unpaid balance payable every January 1. Market rates of interest for similar debt is about four percent. Today is December 31, 2016, and Bakery reports $8,300,000 of accumulated earnings and profits. Pro rata cash dividends for 2017 are expected to total $200,000. The corporation's projected income statement for 2017 is attached. Due to the upheaval related to James’ “retirement,” E&P from Bakery’s operations for 2018 is assumed to be $50,000, all produced after the redemption occurs. Further, annual cash dividends to the remaining shareholders are suspended for 2018. 2017 Full opera(ng year for Bakery 2018 James resigns, redeems shares, takes note 2019 First payment on note James Curtis refuses to commit to the terms of the redemption until he fully understands and can accept the tax consequences to him. Therefore, the Curtis family has retained you to determine the tax consequences to both James Curtis and Bakery of the proposed redemption. The continuing shareholders particularly want to know the amount of Bakery's accumulated earnings and profits immediately before and after the redemption. Be as specific as possible in responding to the parties’ questions, and provide suggestions and/or alternatives that might result in more favorable tax consequences to those involved, including Bakery itself. PwC Case Studies in Taxation, © 2016, PwC, LLP Page 2 of 3 Curtis Brothers Bakery, Inc.

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