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Amy and Jeff Barnes are going to operate their florist shop as a partnership or as an S Corporation

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Question;18-6 Amy and Jeff Barnes are going to operate their florist shop as a;partnership or as an S Corporation. Their mailing address is 5700;Richmond Highway, Alexandria, VA 22301. After paying salaries of 100,000;to each of the owners, the shop?s annual earnings are projected to be;about 150,000. The earnings are to be invested in the growth of the;business. Write a letter to Amy and Jeff advising them of which of the;two entity forms they should select. 18-8 Coleman, a married taxpayer;is going to establish a manufacturing business. He anticipates that the;business will be profitable immediately due to a patent he holds. He;anticipates that profits for the first year will be about 300,000 and;will increase at a rate of about 20% per year for the foreseeable;future. He will be the sole owner of the business. Advise Coleman on the;form of business entity he should select. Coleman and his wife will be;in the 39.6% Federal income tax bracket. 18-18 Laurie Gladin owns land;and a building that she has been using in her sole proprietorship. She;is going to incorporate her sole proprietorship as a C Corporation.;Laurie must decide whether to contribute the land and building to the;corporation or to lease them to the corporation. The net income of the;sole proprietorship for the past five years has averaged 250,000. Advise;Laurie on the tax consequences. Summarize your analysis in a memo for;the tax file. 18-40 Gail and Harry own the GH Partnership. They have;conducted the business as a partnership for 10 years. The bases for;their partnership interests are as follows: Gail Harry 100,000 150,000;GH Partnership holds the following assets: Asset Basis FMV Cash 10,000;10,000 Accounts Receivable 30,000 28,000 Inventory 25,000 26,000;Building 100,000 150,000 Land 250,000 400,000 The straight-Line Method;has been used to depreciate the building. Accumulated depreciation is;70,000 Gail and Harry sell their partnership interest to Keith and Liz;for 307,000 each. a. Determine the tax consequences of the sale to Gail;Harry, and GH partnership. b. From a tax perspective, should it matter;to Keith and Liz whether they purchase Gail and Harry?s partnership;interests or the partnership assets from GH Partnership? Explain;Discipline Parchment, Inc., is created with the following asset and;liability contributions. Jake and Fran each receive 100 shares of;Parchment common Stock. Shareholder Assets Basis Fair Market Value Jake;Cash 100,000 100,000 Fran Land 40,000 120,000 The land is subject to;mortgage of 20,000 that parchment assumes. a. Prepare a financial;accounting balance sheet for Parchment. Discuss the relevance of conduit;theory and entity theory in the creation of Parchment. b. Prepare a tax;balance sheet for Parchment. Discuss the relevance of conduit theory;and entity theory in the creation of Parchment. c. Assume that Parchment;sells the land for 150,000 four months after Parchment was created.;Discuss the effect of the sale on the financial accounting balance sheet;and the tax balance sheet 2. Assume that Parchment in (1) elects S;Corporation status at the time of its creation. Respond to A, b and C 3.;Assume that Parchment in (1) is a general partnership rather than a;corporation. Respond to a, b and c. Would your answer change if;Parchment were an LLC that ?checked the box? to be taxed as a;partnership? Explain 4. Teal, inc., owns total assets of 100 million and;it reports annual revenues of 700 million. Lavender, inc., owns total;assets of 12 million and it reports annual revenues of 900,000. both;Corporations have been in existence for three years. a. Explain why;neither Teal nor Lavender computes an AMT liability for its first tax;year. b. Explain why, in later years, Teal computes an AMT liability and;Lavender is not required to do so. c. Do you think that this different;tax treatment for Teal and Lavender is equitable? Explain your position.

 

Paper#51955 | Written in 18-Jul-2015

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