Tax Memo
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Tax Research Memo: Entity Selection Issue
FROM: Mark J. Sobanski, CPA
TO: Penelope, Mark and John.
DATE: April 15th, 2013.
SUBJECT: Entity Selection for the new business.
Issue/ Considerations:
It is desired to study the issue of how should the new business to be started by Penelope, Mark and John be structured?
The related tax and non-tax considerations are as follows – I. The different forms of organization available to Penelope, Mark and John. II. Recommendation as to the best form of organisation and the reasoning for this choice. III. Tax consequences of contributing cash, property and/or services to the new entity. IV. The manner of taxation and the filing requirements with the IRS for this entity. V. Related allocation of income and distributions to Penelope, Mark and John. VI. The manner of taxation of individuals in relation to the net profits from this entity and the related filing requirements with the IRS. VII. Calculation of the “basis” of Penelope, Mark and John in the new entity. VIII. Exposure of the personal assets of Penelope, Mark and John to the debts and lawsuits of the recommended entity.
Recommendation:
The various considerations have been answered as below – I. The various forms of organisations available to Penelope, Mark and John are partnership, corporation, Limited Liability Company, professional association and other legal entities. II. Out of the various available forms of organisation, the best and recommended form is a Limited Liability Company. It is a hybrid entity which has certain characteristic of a partnership and certain of a corporation. It has the limited liability feature of a corporation and the flow-through taxation to members as in the case of a partnership. It is the most suitable form of an organization because the three can take advantage of its benefits but not get affected by its disadvantages. Its disadvantages
Tax Research Memo: Entity Selection Issue
FROM: Mark J. Sobanski, CPA
TO: Penelope, Mark and John.
DATE: April 15th, 2013.
SUBJECT: Entity Selection for the new business.
Issue/ Considerations:
It is desired to study the issue of how should the new business to be started by Penelope, Mark and John be structured?
The related tax and non-tax considerations are as follows – I. The different forms of organization available to Penelope, Mark and John. II. Recommendation as to the best form of organisation and the reasoning for this choice. III. Tax consequences of contributing cash, property and/or services to the new entity. IV. The manner of taxation and the filing requirements with the IRS for this entity. V. Related allocation of income and distributions to Penelope, Mark and John. VI. The manner of taxation of individuals in relation to the net profits from this entity and the related filing requirements with the IRS. VII. Calculation of the “basis” of Penelope, Mark and John in the new entity. VIII. Exposure of the personal assets of Penelope, Mark and John to the debts and lawsuits of the recommended entity.
Recommendation:
The various considerations have been answered as below – I. The various forms of organisations available to Penelope, Mark and John are partnership, corporation, Limited Liability Company, professional association and other legal entities. II. Out of the various available forms of organisation, the best and recommended form is a Limited Liability Company. It is a hybrid entity which has certain characteristic of a partnership and certain of a corporation. It has the limited liability feature of a corporation and the flow-through taxation to members as in the case of a partnership. It is the most suitable form of an organization because the three can take advantage of its benefits but not get affected by its disadvantages. Its disadvantages
References: 1. CCH Incorporated, (2010). U.S. Master Tax Guide 2011. Toolkit Media Group. 94th edn. 959 pages.