A, B, C non-profit entity, and D are forming an LLC.

A has a great deal of taxable income every year and much of that is passive income. He wants to invest for the long run and wants as much in the way of taxable losses from the LLC as possible. A is single.

B is in the real estate business. She manages properties for her own LLC. She is married (joint tax return) and no passive income and she does not have any funds to invest in anything.

The C non-profit entity is interested in investing for the long term. As a non-profit, they are unconcerned with any allocations of taxable income. They are interested in a very secure financial investment and annual returns as soon as possible.

D has significant financial resources, but not very much in the way of passive income. She is aggressive and not at all risk-averse.

The LLC will be purchasing land just south of ChinoHills, working the project through zoning which will take a number of years, building a shopping center, and then leasing the project to small tenants. Their best guess is that the project will cost about $2,500,000 before they begin construction, construction will cost about $15,000,000, the project will show cash losses in the first years of operations of 2,000,000 in years 1 &2, will break even in year three and then have a next year cash profit of $1,000,000 per year increasing thereafter at 7% per year. Because of the financial strength of the partners, the LLC should be able to borrow about $16,000,000 on a non-recourse basis.

A. Make suggestions with respect to the allocation of losses and profits.

b. identify changes you would make to the current estate tax laws.

c Explain why the three (or four) part state tax formula is fair.