Background Your Client, Tom M and his wife, Donna M, are the owners of a heating

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Background
Your Client, Tom M and his wife, Donna M, are the owners of a heating oil delivery
business which they operated for more than 20 years. They sold the business to a
competitor on April 30, 2021, after the end of the 2020-2021 heating season.
The business was operated as Tom M Oil Inc., an S corporation, which was owned 50%
by Tom and 50% by Donna.
They realized net profits from the operation of Tom M Oil Inc. from Jan – Apr 2021 of
$45,000. The shareholder account balances for Tom and Donna as of Jan 1, 2021 were
$0.
The corporation’s assets consisted solely of a customer list, service parts, oil inventory
and three delivery trucks:
• Truck #1, purchased on June 15, 2020 for $80,000, cumulative depreciation
$35,000, FMV of $70,000
• Truck #2, purchased on March 20, 2018 for $45,000, cumulative depreciation
$40,000, FMV of $60,000
• Truck #3, purchased on October 15, 2018 for $40,000, cumulative depreciation
$35,000, FMV of $50,000
The corporation owned no real property.
The competitor, Energy Star Corp. (Buyer), paid the purchase price of $495,700 plus
the value of the oil inventory at cost on the day of the closing, allocated as follows:
• Truck 1 70,000
• Truck 2 60,000
• Truck 3 50,000
• Supplies Parts (cost – $4,300) 8,200
• Restrictive Covenant* 7,500
• Goodwill 300,000
• Oil Inventory purchased at cost, generated no gain or loss
*Restrictive Covenant: As a condition of the purchase, the Buyer demanded that
Tom M, Donna M and Tom M Oil Inc. agree not to own or operate, directly or
indirectly, another oil company for three years, in exchange for $7,500.
Tom M Oil Inc. ceased business as of April 30, 2021 after the sale and has distributed
the proceeds to Tom and Donna in complete liquidation during 2021.
ASSIGNMENT (100 Total Possible Points)
Part1. Evaluation of Income Tax Issues (75 Possible Points).
Tom & Donna have asked you to analyze and advise them of the tax consequences
of the sale to Tom M Oil Inc. Tom M & Donna M.
Tom M Oil Inc. has always been an S Corporation. Tom and Donna filing status is
married filing jointly.
For the purposes of your evaluation in this assignment, your clients are Tom and
Donna, and are your only concern! Do not analyze or evaluate the consequences to
the Buyer.
This assignment involves writing a memo evaluating the Income Tax results for Tom
M Oil Inc., Tom M and Donna M.
Your memo will evaluate qualitatively and quantitatively the sale of assets and
liquidation of Tom M Oil Inc. You must discuss all applicable rules and show all
calculations.
Your Memo addresses only the Income Tax Issues of this scenario – do not
discuss operational or any non-tax issue. If you do, points will be deducted.
Part 2. Tax Return for Tom M Oil Inc. (25 Possible Points)
After evaluating the income tax issues, you must prepare the final tax return for Tom
Oil, Inc. with Schedule K-1’s for Tom and Donna.
INSTRUCTIONS
Your submission must be in Memorandum format addressed to Tom & Donna and must
be 3 to 6 pages (not counting cover page, exhibits and references), single-spaced, 12
pt. Arial or Times New Roman font, analyzing ONLY the questions set forth above.
The Tax Return & Schedule K-1 for Tom M Oil Inc. must be completed using the forms
for 2021.
All references must be set forth in APA Format.
Also, there is no need for an Abstract or Introduction. Write your answer in
Memorandum format as if presented to a client. Address it to Tom and Donna.

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