Problem:
Nancy and her daughter, Margaret, have been working together in a business called The Floral Shop. Nancy formed the business in 1990 as a sole proprietorship. Because Nancy was well known and liked in the community before starting the business, the business has been very successful. It currently has assets with a fair market value of $ 250,000 and a basis of $ 180,000. On advice of her tax accountant, Nancy decides to incorporate, The Floral Shop. Because of Margaret's loyalty and her desire to have Margaret take over the business when Nancy decides to retire, Nancy would like her to have shares in the corporation. What are the relevant tax issues.