2007 Deloitte Tax Case Study Competition National Case Study The Tait family knows how to throw

a party and how to make money in the process! Dave Tait is the president and CEO (Chief Executive Officer) of Tait Family Fun, Inc. (Tait, Inc.). He has often boasted: Just about every child in 20 states has ridden the Fire Mountain Express or been soaked in the Niagara White Water Adventure. For almost 60 years, the Tait family has designed, developed, owned, operated, and syndicated theme parks around the country. Dave Tait. Each day before he starts work, Dave mentally inventories his list of trophies. Tait, Inc. has completed development of 49 parks, and number 50 is on its way! The company has built adventure parks in 10 states; Dave can view the Grand Texas Adventure Park from his 20th floor office in the Tait headquarters building. The company has also developed Movieland in California, Island Paradise parks in both Hawaii and the U.S. Virgin Islands, and a host of other family destinations in various locations. Grand Texas is one of the original parks and it is still wildly popular. Somehow the Taits managed to cram hotels, shopping villages, restaurants, and the amusement park itself on just 400 acres, and there is still a large parcel awaiting development on one edge of the park. Dave smiled in awe at the specks-that-really-were-people lining up to experience the Free-Fall Tower on the other side of the park, directly across from his office. Im all about speed, but I cant believe theyll drop 20 stories just for fun! he grinned. One day in March 2007, Dave turned from the window to finish reviewing the Offering Memorandum for the companys newest and most elaborate project yet Dreamland Park and Resort, LLC (Dreamland, LLC) on about 4,500 acres in the rolling hills near San Diego, California. But he found it difficult to focus. His mother, Martha, was in the hospital again. Daves wife, Patsy, mentioned almost daily that he spends too much time at the office. Daves two grown children were annoyed that he never has time to visit them. Dave, himself, had just received a less-than-perfect health report from his doctor. Youre in good health for someone your age, the doctor had said. But who wants to feel 52?! thought Dave. He moved to study the Dreamland model on the table in the center of the office. But his attention shifted to the bookshelf in the corner where he spied a 1/18 scale model, red 1968 Mustang GT Fastback he had built 40 years ago. For a moment, he was back in high school. He could almost smell the rubber and see the smoke from his burnouts at the drag strip. He thought about the classic cars in his 8-bay garage awaiting his refurbishing skills. And the bumper sticker Id rather be racing preserved in a shadow box, instead of defiling one of his precious cars. He couldnt help it, he grinned again. Im ready to have my own kind of fun. Maybe its time to turn the reigns over to Jackie, he thought. Jack Tait. Jack Tait is Daves younger cousin. He had started following Cousin Dave around the parks almost as soon as he could walk, and now Jackie (as he is known in the industry) is Chief Operating Officer of the company.

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Sometimes, looking at Jack, it is hard to believe he is serious about work. You can tell he spends a lot of time in the gym and considerable time enjoying the sun! What may not be so apparent on the surface is that Jack is a hard-core family man, and that he is dedicated to the Tait Family Fun mission. Jack has kept a lower profile at Tait, Inc. on purpose. He and his wife, Jennifer, have four teenagers, three sons and a daughter. When the children were younger, Jack attended as many ball games and dance recitals as one person could possibly sit through. Nowadays, he keeps repeating to himself, I cant believe Jeremy and Ashley will be heading to college this fall! His kids sometimes feel the wrath of his discipline, but they know they can call on him when they need him. Jack believes deeply in providing a nurturing, caring environment for children, so he takes his job seriously. I want to create a place where people of all ages can learn, grow, and be happy. With 25 theme parks to his credit, Jack is the best in the business. In March 2007, while Dave was in his office three floors away gazing at the Mustang model, Jack sighed, deep in thought. I know Dave is tired of working so hard. With my kids starting college, and Aunt Marthas health issues, its time for me to step up. Dreamland can be amazing, and Im the best one to make that happen. Daves ready to have some fun maybe even start racing again, Jack grinned, then he stared at the Dreamland blueprints with a look that said, Why didnt I think of that before, and he penciled in a new design on the paper. Martha Tait. When she was younger, Martha was a gorgeous woman. She had been a war bride, teaching second grade while her husband, Frank, served in the Philippines during World War II. She learned to survive with almost no resources and to take care of herself and her family without losing her Texas style, charm, and grace. In March 2007, Martha was in the hospital for observation for the second time in a month. She had just celebrated her 75th birthday, and she kept promising, Ill still be here when Im 90. Dave didnt know what to think. Even in the hospital, Marthas hair and makeup were always perfect, and she always wore a smile. The doctors couldnt find anything specifically wrong except to say, Well, shes 75 years old and her body is tired. So Dave spends as much time with her as he can spare. Martha seems to be responding to the attention. Lately shes been quite entertaining, managing to embarrass Dave with stories about his younger days. Well, there was that time you spun the car 360 degrees, just after your dad and I showed up at the track. Patsy was there with some other guy, but you were so cute about it that she dropped him and started trying to catch your attention. I guess it worked, she winked.

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The Track. Once Jack finished his new design, he decided to talk to Dave immediately. He rolled up the blueprint, and marched upstairs to Daves office. Dave looked guilty when Jack walked in. He had been gazing, again, at his Mustang. With a trace of mischief in his voice, Jackie said, Hey, Dave, lets look at the Dreamland plans again. Wistfully, Dave looked away from the Mustang and down at the plans Jack had brought with him. He stared for a minute at Jacks handwritten note on the side of the plan and then a huge smile crossed his face. You are brilliant, cousin! In Dreamland Park, a safe distance from the Phase II Sports Complex, Jack had penciled in a drag strip, a racing track, and a stadium. Well add the same facilities at Grand Texas. And well start a museum for your growing car collection. Ours will be the only parks in the country to have speed sports just a short tram ride from the roller coaster rides. Youll be able to race and rebuild your cars and still get some work done!

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4 REQUIREMENTS NOTE: Your analysis is as important as your final conclusion. Be sure to support each answer by documenting your thoughts, as well as showing your calculations. ALWAYS PROVIDE CITATIONS. NOTE: Several of the transactions described have been simplified from the way they would be completed in the real world. This is to make your life easier, so just have fun! Requirement 1. [Undergraduate oral presentation.] Refer to the March 17 letter to Phil Gardner. How is Marthas basis in her Tait Family Fun, Inc. stock determined? What is the effect on her basis of 1) the recapitalization 2) the new stock issuance and 3) the stock dividends? Does she recognize income, gain, loss, or deduction when she receives the stock or upon any of these other events? Calculate Marthas per-share basis separately for each stock lot as of March 17, 2007. Requirement 2. [Undergraduate oral presentation.] Describe, in general, how a cash distribution from a corporation (not in exchange for property) is treated. How does the result change if the shareholder surrenders stock in exchange for the distributed cash? Which situation produces the most favorable tax result for an individual shareholder? A corporate shareholder? Why? Focus on the possible tax treatment rather than the requirements for obtaining that treatment. Requirement 3. [Graduate oral presentation.] Dave Tait is considering having Tait Family Fun, Inc. buy back his mothers 200,000 shares of Tait, Inc. stock for $12 million. Discuss whether this transaction can be treated as a redemption under any of the tests of 302(b). Provide as much assurance as possible. If not, how is the payment treated? What are the tax ramifications to his mother, Martha? Assume Tait, Inc. has adequate earnings and profits. Would this transaction offer any estate or business planning benefits to Martha or to Tait, Inc.? Requirement 4. [Graduate oral presentation.] Refer to the email from Jackie Tait to Phil Gardner. Why might Ted Martin be interested in having Park Supply, Inc. receive a dividend (Teds words) from Tait, Inc. instead of selling the stock to a third party? How would the tax treatment differ for a sale versus a redemption/dividend? Is Supply likely to receive the hoped-for tax treatment? Why or why not? What are the advantages and disadvantages to Tait, Inc.? Requirement 5. [Undergraduate oral presentation.] Discuss the tax issues that arise if Martha 1) gifts her property currently or 2) retains the property so that it is included in her estate. In general, what is the result if Martha dies in 2007? 2010? Some later year? What assumptions and variables affect Marthas decision? What quick fixes can Martha take advantage of (without creating new entities)? Do not make calculations. Assume Martha has never made any taxable gifts. Do not discuss the generation-skipping tax. Marthas beneficiaries include Dave, Jack, their spouses, and the next generation.

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5 Requirement 6, Graduate students only. [Graduate oral presentation.] Assume Martha continues to own Tait Properties, LLC., and that, upon her death (at some point in the future), the LLC interest will be transferred to Jack and Dave. How will her interest in that LLC be valued in her estate tax return? What is Jack and Daves basis in the (inherited) LLC interest? What is the LLCs basis in the assets it owns? What planning opportunities are available? Answer the question using 2007 values and tax rates/rules. Requirement 7. [Undergraduate oral presentation.] Refer to the excerpt from the Offering Memorandum for Dreamland Park and Resort, LLC. Describe, in general, how the LLC will treat each of the items shown in the Uses of Cash chart (Total Amount column). Describe when deductions can be claimed for costs that cannot be expensed immediately. What tax return reporting issues must be addressed? For depreciable property, do not try to determine the recovery period. Requirement 8. [Graduate oral presentation.] Refer to Jackies July 10 email to Phil Gardner. When does Tait Construction recognize the profit on construction of the Dreamland facilities? Describe what would happen if actual costs in 2010 are $1 million greater than expected. Requirement 9, Graduate students only. [Graduate oral presentation.] The LLC that will own and operate Dreamland, LLC was funded 1% by Tait Park #50, Inc. (the management company), and 99% by the individual and corporate investors. During the partnerships operating years, 10% of taxable income and cash flows will be allocated to Tait Park and 90% of taxable income and cash flows will be allocated to the investors. Is this an acceptable allocation of partnership income? Why or why not? What additional information would you need to be sure? Requirement 10, Graduate students only. [Graduate oral presentation.] Refer to Daves letter to Phil Gardner dated August 13, 2007. From a tax and business perspective, what is Delta trying to accomplish with the cash versus stock offer? Will the transaction qualify as either a Type A or Type C reorganization? What requirements must be met? What will be the tax effect to Dave if he receives cash? Delta stock? Requirement 11. [Undergraduate oral presentation.] Two of Jackies children will be heading to college this year, and the other two will be starting college in the near future. In general terms, describe the types of tax-favored education-related incentives and benefits and how they are treated for tax purposes. Requirement 12. [Undergraduate oral presentation.] Refer to Daves letter of March 25, 2017. Describe how various loss limitation rules apply to the 2015 and 2016 losses. Discuss the positions Dave and the IRS might take. Assume the amounts shown in Daves letter are actual tax amounts, the debt is still outstanding, and there were no transactions other than those described in Daves letter.

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6 Excerpt from Fun and Frolic: A Visual History of Tait Family Fun, Inc. [This is a coffee table book with a small amount of narrative interspersed among numerous fullpage, glossy photos of attractions at the various Tait parks. Jackie Tait keeps the book on his desk for visitors to enjoy.] Formation of the company. Tait Family Fun, Inc. was formed in Dallas, Texas in the mid-1950s by Frank Tait. Frank contributed his personal life savings of $5,000 cash (separate property) in exchange for 100% of the company stock. He gave his wife, Martha, a 5% ownership interest in 1963. When Frank died in 1988, his will provided for $2 million of the stocks value to be transferred to Martha with the remainder being divided equally between his son, Dave, and nephew, Jack. Martha became the owner of 16-2/3% of the company (including her original 5% share), and Dave and Jackie each owned 41-2/3%. Dave became president and CEO of the company. Jack became the Chief Operating Officer. Going public. In the early 1990s, the business really took off. Almost every major city wanted to lure tourists with a water park, wild animal preserve, theme park, or shoppertainment mall and Tait, Inc. was ready to help. To fund its growth, the company went public. It recapitalized in 1995. In 1996, it issued new shares representing 40% of the voting power of the companys stock. After the stock issuance, the company was owned as follows: Martha owned 10%, Dave owned 25%, and Jack owned 25%, with 40% of the stock being traded on NASDAQ and owned by unrelated corporate and individual shareholders. Corporate structure. Tait Family Fun, Inc. is now a multi-corporation conglomerate. The Subchapter C corporation owns 100% of the stock of several subsidiaries (see the ownership chart on the next page): Tait Land, Inc. buys property that might be suitable for future developments. Tait Design, Inc. designs the parks. Tait Capital, Inc. prepares and markets the syndicated offerings and arranges financing for the new parks. Tait Construction, Inc. builds the parks. Tait Parks #1 to #50. Tait, Inc. also has 50 wholly-owned subsidiaries that act as management companies for the properties syndicated by Tait. These subsidiaries are discussed under The Syndications.

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7 Excerpt from Fun and Frolic: A Visual History of Tait Family Fun, Inc. Ownership chart. The following diagram summarizes the Tait Family Fun, Inc. operating and ownership structure as of December 31, 2006:

The Syndications. Tait, Inc. designs, constructs, and operates the theme parks. However, Tait is not the sole owner of each of these properties. When Tait, Inc. is ready to develop a park, it forms a new subsidiary to act as the management company for that property. The subsidiary is named Tate Parks #(X) (with (X) being the property number). There are currently 50 such subsidiaries. The subsidiary forms an LLC with the investors in the property. Generally, the subsidiary (management company) contributes 1% of the total cash; the investors contribute the other 99%. During the years the LLC owns the park, 10% of the LLCs profits, losses, and cash flow are allocated to Tait. On the next page, you can see a diagram of the operating structure for the newest of these entities Dreamland Park and Resort, LLC. [NOTE: In the real world, different entity structures would probably be used in some states as a result of the tax and business environment in those states. For example, Texas and some other states treat LLCs as corporations for purposes of assessing a corporate franchise tax. California charges an additional fee if the LLC has income in excess of a specified amount. In those states, the Park might be owned by a limited liability limited partnership (LLLP) or other entity, rather than an LLC. We are trying to simplify the case by illustrating one structure that could be used in many states.]

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8 Excerpt from Fun and Frolic: A Visual History of Tait Family Fun, Inc. Dreamland Park and Resort. The Taits decided years ago that they wanted to do something really special for their 50th Park. Dreamland Park and Resort (Dreamland) is shaping up to fit that goal. For several years, Tait Land, Inc. has been quietly buying land in the hilly countryside near San Diego. The company has accumulated more than 30,000 contiguous acres, and the Taits have received the support and enlisted the talents of local governments as well as some of the biggest names in the entertainment industry. When completed, Dreamland will be the largest adventure and entertainment venue in the country. Phase I will be syndicated in 2007 and is expected to be operational in 2010. Dreamland, LLC will purchase 4,500 acres from Tait Land. Tait Design has already completed architectural designs and a model of the property. Tait Construction will build the infrastructure and facilities. Tait Parks #50, Inc. will be a 1% owner and will manage the property. The ownership chart for Dreamland, LLC is shown at the bottom of this page. Initially, the park will include a 1,000-room resort hotel, two golf courses, and a 300-acre amusement park. Over the years, Phase I will be expanded to include 10,000 hotel rooms, a water park, upscale and discount shopping, three additional golf courses, a performance arts center, and an extreme action sports complex. In the amusement park, the theme areas are based on best-selling books and movies and are designed to appeal to adults and kids of all ages. In park areas for younger children, you can find Uncle Remus next to Mother Goose next to Dr. Seuss. Young adults can visit a mini-Hobbiton on the left or Hogwarts on the right. Adults can choose among several venues: Arts with live theatrical and symphonic performances; Sports with live, semi-pro sporting events; Mystery with Clue or Nancy Drew dinner theaters; Romance with Titanic, Casablanca, and Sleepless in Seattle restaurants; and Action with Indiana Jones and Terminator rides.

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9 Excerpt from Fun and Frolic: A Visual History of Tait Family Fun, Inc.

Tait Properties. The Tait, Inc. headquarters building is owned by a separate company Tait Properties, LLC. The LLC is owned one-third each by Martha, Dave, and Jack. The ownership chart for the LLC is as follows:

End of book excerpt

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10

Mr. David M. Tait Tait Family Fun, Inc. 3800 E. Mockingbird Lane Highland Park, TX 75205

March 17, 2007 Mr. Phil Gardner 200 E. Commerce Street Dallas, TX 75207 Dear Phil: Martha Tait, my mother, has been in the hospital for the last few days. This is her second visit this month. The doctors say they dont think she is in imminent danger, but they also said we should make sure her affairs are in order. As incredible as this sounds (and despite all your good advice), we have never completed a thorough estate plan for her. Her will was last updated in 1988 when my dad died. Tait Family Fun, Inc. Mother presently owns 10% of Tait Family Fun, Inc. Father originally purchased 10,000 shares of the stock for $5,000 when he formed the company in 1952. In 1963, he gave Mother 500 shares, or a 5% ownership interest. The stock was valued at $100,000 at that time. (NOTE: Assume gift taxes did not apply to this transfer. Ignore community property issues.). She received an additional 1,167 shares from Fathers estate when he died in 1988. The additional shares were valued at $2 million in his estate tax return. After Fathers death, Mother owned 1,667 shares, or 16.67% of the companys stock. In 1995, we recapitalized (in accordance with a plan adopted by the shareholders) in anticipation of going public. Mother surrendered her 1,667 shares in exchange for 50,000 new shares. The total replacement shares had the same voting rights, principal amount, and value as the original stock. In 1996, Tait, Inc. raised $20 million ($100 per share) by selling new shares representing 40% of the total voting rights to investors. The new shareholders bought the stock for cash; the corporation issued only stock to them. No other cash or property changed hands, so this was not a taxable transaction. As a result of the stock offering, Mothers voting rights were diluted to 10%, but the value of her ownership interest did not change her stock was worth about $5 million both before and after the offering. In 2000, the company issued a proportionate 2-for-1 stock dividend; it did the same in 2004. Mother now owns 200,000 shares (still 10% of the total; there are now 2 million shares outstanding). Last Friday, the stock traded for about $60 per share, Mothers total value is about $12 million. For both stock dividends, all shareholders were required to receive new shares in exchange for the old shares. A cash dividend distribution was not an option.
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11

Tait Properties, LLC. Mother owns a one-third interest in Tait Properties, LLC. (This entity is taxed as a partnership.) This is the limited liability company that owns Tait, Incs office space, the 26-floor building across from Grand Texas Adventure Park. The appreciation in that property has been tremendous! We bought the land, building, and the related personal property for $18 million; the LLCs basis in its assets is presently $15 million. The property was appraised for $60 million last fall; there is no debt on the property. The LLC doesnt really own any other assets. You sent us a calculation that shows that Mothers basis in the LLC interest as of December 31, 2006 was $5 million. Other property. Mother has a stock portfolio valued at about $6 million. The portfolio includes appreciated and depreciated securities. Quite a bit of this stock was purchased recently and has a basis close to its fair market value. Alternatives. My memory is really fuzzy, but it seems that we tossed around three ideas the last time we discussed estate planning for Mother: First, we discussed having Tait Family Fun, Inc. buy back Mothers stock for cash. Second, we discussed having Mother gift some or all of her Tait, Inc. stock, her interest in Tait Properties, LLC, or her stock portfolio. She would give them to some combination of Jack, me, the spouses, and the next generation the grandchildren, great-nieces, and greatnephews. Third, we discussed having her just keep all her property with the idea that we would include these assets in her estate when she eventually passes on.

My attention has been focused on Dreamland Park lately, so we never resolved this. Were all hopeful that Mother will still be here 10 years from now, but we need be prepared for the alternative. Please let me know what you recommend for us to do. Sincerely,

Dave
David M. Tait President Chief Executive Officer Tait Family Fun, Inc. Motto: Our vision is your Dream(land) come true!

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12

To:

Mr. Phil Gardner

From: Mr. Jackson R. Tait, via email Re: Date: Hi Phil: Ted Martin called this morning. Ted owns 100% of Park Supply, Inc. (Supply) and Park Maintenance, Inc. (Maintenance). Supply owns 2% of the Tait , Inc. stock. Maintenance owns 10% of the Tait, Inc. stock. These businesses are Subchapter C corporations that have been shareholders since Tait, Inc. went public in the mid-1990s. Ted has been one of our biggest supporters. Supply is a food, beverage, and supply vendor. Maintenance performs repairs and maintenance to keep park rides and attractions in the best possible operating condition. Most of our parks have annual contracts with both Supply and Maintenance. Ted wanted to find out if Tait, Inc. would be interested paying a dividend (his words) of $2.3 million to buy back 100% of the stock Supply owns in Tait, Inc. Thats a favorable price $57.50 per share (for 40,000 shares). The stock is currently trading at $60. Ted has an opportunity to expand his production facilities. Hes a really conservative guy, and he would rather buy the new facility with cash than to obtain bank financing. I think his basis in the Tait stock is about $25 per share. This was a courtesy cal, and hell probably either sell the stock on the market or sell it back to us. His company only owns 2% of our business, but that represents 5% of the shares traded on the market. Our share price will drop if that much stock hits the market at one time. Ted has always been extremely fair to us, and he is important to us! Teds company makes sure all our facilities are clean and our rides and attractions are operating safely. I want to make this happen if it makes sense for Tait, Inc. I know well have to run it by the board of directors (and possibly the shareholders), but I wanted to find out your initial take on this. Thanks in advance, URGENT: Shareholder redemption request April 3, 2007

Jackie Tait
Jackson R. Tait Chief Operating Officer Tait Family Fun, Inc.

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13 Excerpt from Offering Memorandum for Dreamland Park and Resort, LLC Sources and uses of cash flows. Dreamland Park and Resort, LLC, will be formed with initial cash contributions of $2 million from Tait Parks #50, Inc. and $198 million from the investors responding to this Offering. Tait Parks #50 will serve as the Managing LLC Member. Debt financing of $300 million will be provided at favorable rates by an unrelated third party lender. The total cash available for the project will be $500 million. Proceeds from the offering will be used to buy land and to build the amusement park, a 1,000-room hotel, and two golf courses. The Dreamland Hotel and Conference Resort will include luxury amenities at a moderate price. The two Dreamland Golf courses will be built using modern greens technology. The offering proceeds will also be used to fund pre-opening costs, such as staff hiring and training, and advertising and promotional expenses. Approximately 5% of the offering proceeds will be held for contingencies. The following chart summarizes the sources and uses of initial cash flows:
Payment from Tait (Included in Total) $2,000,000 $2,000,000 Payment to Tait (Included)

Sources of Cash Private offering Debt Total Uses of Cash Legal fees for forming the LLC Commissions for selling interests in the LLC to investors Architectural and design costs Land and infrastructure Amusement park construction Golf course construction (2 courses) Hotel construction & resort amenities Upscale rooms (100 rooms) High-end rooms (300 rooms) Mid-range rooms (600 rooms) Interest during construction period Pre-opening costs Cash reserves Total Total fees to Tait parties excluding purchase price of land

Total Amount $200,000,000 300,000,000 $500,000,000 Total Amount $500,000 12,000,000 22,850,000 54,000,000 120,000,000 31,500,000 25,000,000 21,000,000 36,000,000 58,000,000 90,000,000 29,150,000 $500,000,000

Tait Affiliate Contribution by Tait Parks #50

Tait Affiliate

$12,000,000 22,850,000 54,000,000 12,000,000 3,150,000 2,500,000 2,100,000 3,600,000

Tait Capital Tait Design Tait Land Tait Construction Tait Construction Tait Construction Tait Construction Tait Construction

$112,200,000 $58,200,000

Related party payments. Affiliates of the Managing LLC Member have been engaged to construct the improvements and syndicate the offering. In addition, the land will be purchased from a party related to the Managing Member. Total payments to parties related to the Managing Member are shown in the chart above.
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14 Excerpt from Offering Memorandum for Dreamland Park and Resort, LLC Construction period and construction costs. Construction of the property is expected to commence in June 2007. All operating assets are expected to be in place by February 1, 2010. The grand opening is scheduled for May 1, 2010. Total construction costs equal $291.5 million. Of this amount, $23.35 million will be paid as a fixed fee to Tait Construction, Inc., an affiliate of the Managing Member. Cash flows from operations. Revenues will be received from park admissions, food and beverage sales, souvenir sales, hotel lodging, and golf course fees. Revenues and expenses are based upon projected annual park attendance of 5 million guests. Revenues per park guest are included at about $100 per person. Hotel revenues are based on average rates of $130 and a projected 50% occupancy rate. Golf course revenues are based on 50% utilization and $60 green fees per player.
Revenues: Park Admissions Food and beverages Souvenir sales Hotel (at 50% occupancy) Golf (at 40% utilization) Total revenues Expenses: Cost of items sold Selling, general and administrative costs Direct operating expenses Debt service: Interest Principal Total expenses Net cash from operations Cash paid to Tait (10% of net cash) Cash available for investor group Investor group return on investment

200,000,000 200,000,000 90,000,000 23,725,000 2,279,500 516,004,500 145,000,000 82,560,720 180,601,575 24,000,000 30,000,000 462,162,295 53,842,205 5,384,221 48,457,984 24.23%

Comparable figures. All figures are conservatively stated. Other amusement parks in the San Diego area receive 7-12 million visitors per year who spend an average of more than $110 per day. Average hotel rates in the area exceed $150 per day; occupancy rates exceed 60%. Golf course utilization in the San Diego area is approximately 60%, with average greens fees and other revenues of approximately $75 per person. Taxation of the entity. Dreamland Park and Resort, LLC will be taxed as a partnership.

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15 Revenue Ruling 2001-60, page 1

Internal Revenue Ruling 2001-60

16 Revenue Ruling 2001-60, page 2

Internal Revenue Ruling 2001-60

17 Revenue Ruling 2001-60, page 3

Internal Revenue Ruling 2001-60

18

To:

Mr. Phil Gardner

From: Mr. Jackson R. Tait, via email Re: Date: Hi Phil: Last month, we broke ground on our newest theme park Dreamland Park and Resort, near San Diego, California. Tait Construction, Inc. will serve as the general contractor for the LLC that owns this property. We will spend the better part of three years building the Dreamland amusement park, hotel, and golf course. The LLC pays us our general contractor fee; the rest of the construction costs are paid directly to the subcontractors. Taits total revenues for the project are contractually fixed at $23.35 million. Our related expenses are almost entirely for project management and oversight. We expect our total expenses on the project to be $4 million in 2007, $7 million in 2008, and $3 million in 2009, with wrap-up work in 2010 estimated at $6 million. We always tend to underestimate our expenses. I will not be surprised if total costs are $21 million, but, at this point, the $20 million figure looks reasonable. Hopefully, our total profit will be $3.35 million. Thats not a lot, given that we are overseeing a $200 million construction project, but we are pleased with the overall arrangement. Please let me know how to report the revenues and expenses from this contract. Thanks in advance, Construction Revenues for Dreamland Park and Resort Contract July 10, 2007

Jackie Tait
Jackson R. Tait Chief Operating Officer Tait Family Fun, Inc. P.S. Well have to plan a visit to this park after its finished you wont believe all the fun little twists and turns were including!

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19

Mr. David M. Tait Tait Family Fun, Inc. 3800 E. Mockingbird Lane Highland Park, TX 75205

August 13, 2007 Mr. Phil Gardner 200 E. Commerce Street Dallas, TX 75207 Dear Phil: In last nights mail, I received a multi-page letter and an election form from Alpha Pharmaceuticals, Inc. regarding their upcoming reorganization with Delta Chemicals. The letter states that I can surrender my shares in Alpha in exchange for either 1) cash of $82 per share 2) stock in Delta Chemicals or 3) some combination of cash and stock. Delta will receive all of Alphas assets and liabilities and will issue Delta stock and/or cash to the Alpha shareholders. Delta reserves the right to limit total cash payments to Alpha shareholders to $30 million. To the extent possible, Delta will honor everyones request, but, if the cash requests exceed $30 million, the actual cash will be pro rated based on the requested amounts of cash; Delta shares will be issued for the remainder. The total value of Alpha is about $100 million. To summarize Alpha transfers its assets to Delta; Delta transfers cash (up to 30%) and Delta stock to Alphas shareholders in exchange for their Alpha stock. I own about 18,000 shares in Alpha. My basis is $10 per share. I bought the stock many years ago; it is currently trading at about $80 per share. Delta seems like a fine company, but, at these prices, I wouldnt mind reducing my investment! Until the merger was announced, Alpha was trading in the low-70s. Id like to cash out some of this increased value (and the $2 bonus Delta is offering). Im hoping you can explain what all of this means. What is Delta trying to accomplish? I thought I had to receive only stock in a reorganization. Can Delta really make cash payments? Why do they limit the total cash payments to $30 million? As always, Im glad I have your help when I have to deal with impossible issues like this! Sincerely, Dave David M. Tait President and Chief Executive Officer Tait Family Fun, Inc. Motto: Our vision is your Dream(land) come true!

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Mr. David M. Tait Tait Family Folly, Inc. 3800 E. Mockingbird Lane Highland Park, TX 75205

March 25, 2017 [Not a typo this is ten years later] Mr. Phil Gardner 200 E. Commerce Street Dallas, TX 75207 Dear Phil: Last week, we took the whole family to Dreamland Park in San Diego to celebrate Mothers 85th birthday. As you know, weve just finished construction on Phase III, and were starting to syndicate Phase IV. Tait Land still owns about 10,000 undeveloped acres theres no telling what this place will be like in 50 years! We stayed in the Dreamland Speed City Adventure Resort in the valley near the main park. From our room, we could see the race tracks (drag strip and speedway). We shopped our way from one end to the other of the new (Phase III) super-mall. We rode the gondola up into the mountains for the rock climbing and hang gliding adventures. Mother wouldnt bungee jump (neither would I!), but for her birthday, she decided to ride in my stock car during guest day at the race track. No question, that woman will be here long after Im gone! Racecar losses question. For a few years after my semi-retirement from Tait, Inc., I just raced at the drag strip and worked on my hot rods and collector cars in the garage. Then, I met one of Gordon Stewarts NASCAR crew members. One thing led to another, and I ended up with one of Stewarts cars. I set up a Subchapter S corporation to buy it (I named the S Corporation Tait Family Folly, Inc, but thats beside the point). The car already had our logos splashed all over it, because Tait, Inc. was one of Stewarts main sponsors for NASCARs new over-50 senior circuit.

Copyright 2007 Deloitte Development LLC All Rights Reserved

21 The corporation paid $1 million for the car and some related equipment. I contributed $200,000 to the S Corporation. The bank made the corporation take out a seriously expensive casualty insurance policy on the car, and it still took some wrangling, but the bank loaned Folly, Inc. the remaining $800,000 as a long-term, non-recourse debt. As long as I maintain the car well (and dont wreck it!), I dont see it declining in value too much. At first, I just took the car to Taits various parks and displayed it for the kids. Tait, Inc. paid me a small appearance fee that covered my expenses barely. Then I started driving it and things got expensive! I spent tons of money and time learning how to drive safely and aggressively. I have always loved cars; I have a long history of refurbishing them, and I was motivated to learn. Ive gotten to be a pretty good driver; last year I was third in the country in NASCARs Historic Auto Racing Series. And I won the Weekly Historic Series race last week in Fort Worth. Winning races at that level wont pay all the bills, but it helps. The only way to make a profit as a driver in the lower-level NASCAR circuits is to obtain corporate sponsorships. I had been working on that since I started racing, and it finally happened. After the race last week, I was offered a 3-year, $250,000 per year Mapsite.com sponsorship if I would display their logo on one side of my race car. Of course Im going to accept; after all, Id be lost without Mapsite (Get it? Lost?). Im hoping there might be other sponsorships and race winnings in my future. Here is a summary of Follys income (and losses) for the last four years and my hoped-for income the next two years: 2013 2014 2015 2016 2017 (projected) 2018 (projected) $ 4,000 7,000 (185,000) (285,000) 30,000 240,000 income income loss loss income income

Please let me know if there is anything I need to consider, or if we need to do anything related to this. Sincerely,

Dave
David M. Tait President and CEO Tait Family Folly, Inc. Motto: Our driving is your worst nightmare!

Copyright 2007 Deloitte Development LLC All Rights Reserved