CASE STUDY

You are a Certified Public Accountant and have been asked to provide your client with Tax Planning Advice.Given their current corporate form, your client has requested an analysis of their current tax liability and further analysis if they were to restructure to another corporate tax entity. They are unsure of which entity would be advantageous if they were to change their business structure and reorganized as C Corporation, S Corporation or Personal Holding Company.

Your client current corporate form is either a sole proprietorship or partnership business (the financial statement will indicate which type of business it is)

You are asked to provide the following advice

1.Review the financial and if not calculated you are to calculate the tax liability under the three tax entity scenarios (current corporate form and any two forms you recommend).

2.You will select two (2) alternative Corporate Tax Entity (see table below) studied this semester in addition to your client's current corporate form.

3.You are to give your client insight / an overview of each of the two corporate tax entities.

4.The table below provides a list of allowed tax entities

TAX BUSINESS ENTITIES FORM FOR PROJECT 2020

1

SOLE PROPRIETORSHIP

2

PARTNERSHIP INCLUDING LP, LLP,

3

C CORPORATION

4

S CORPORATION

5

PERSONAL HOLDING COMPANY - PHC

5.Advise the client on the advantages and disadvantages of each tax entity (include the current tax entity) and how it impacts their tax liability. You are required to provide no less than four (4) advantage and disadvantage where possible (you will be penalized if not followed)

6.You are required to complete at least one tax form with your client information and related financial (additional forms completed can result in a higher score in grading.)

Tax Forms

Completed

Y/N

1

Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship)

2

Form 1065, U.S. Return of Partnership Income

3

Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc

4

Form 1120, U.S. Corporation Income Tax Return

5

Form 1120-S, U.S. Income Tax Return for an S Corporation

6

2019 Schedule K-1 (Form 1120-S)

7.Your client current financial is attached

8.You are to ignore payroll and other personal taxes and the qualified business income deduction. You may mention that you ignored these in your analysis

9.USE THE 2018 TAX RATE SCHEDULE LOCATED IN THE FRONT COVER AND BACK COVER

OF YOUR FEDERAL TAXATION 2019 TEXTBOOK

CASE STUDY GUIDELINES

Your case study is an individual assignment and presentation.

WARNING - With the Exception of Citing the Statute/Law all other written content is to be in your own words. Plagiarism will result in a"0"grade for lack of written content.

Your Case Study Grading Scheme - 10%

Case Study Format is EITHER Memorandum-to-the-File (Appendix A-6) or Client Letter (Appendix A-7)

No more thanfive pages not including Tax Forms. ReferencePage is not required. Your report submission will be electronic therefore you are required toinclude A Cover Page & Table of Contentthese will not be included in the page count.

Simply putMAXIMUM7 Pages TOTAL! Should be place in electronic document file. It can be PDF, DOC, Powerpoint or other presentation form.

A. Written Report - 7% - 110pts

1.Cover Page - 5 pts - Creativity, and visual incorporation of Topic

2.Table of Content - 5pts

3.Content - 90pts

Clear and precise discussion on

a.Calculation of Tax Liability for Partnership and two

(2) other Corporate Entities e.g. C-Corp, S-Corp or PHC Issues - 15pts

b.Tax Planning Analysis - 20pts

i.Applicable Law - Tax Theory & Statute Cited - 5Pt

ii.Tax Advantage and disadvantage of each corporate entities - 15pts

c.Completion of Tax Forms Schedule C, 1120C, 1120S, 1065, K & K1- 10 per form up to max30pts

d.Conclusion - Tax Recommendation per entity @5+10pts =25pts

4.APA Format - 10 pts

Document & PDF

Your essay should be typed and double-spaced on standard-sized paper (8.5" x 11"), with 1" margins on all sides. You should use a clear font that is highly readable. APA recommends using 12 pt. Times New Roman font.

Include a page header (also known as the "running head") at the top of every page. To create a page header/running head, insert page numbers flush right. Then type "TITLE OF YOUR PAPER" in the header flush left using all capital letters. The running head is a shortened version of your paper's title and cannot exceed 50 characters including spacing and punctuation

Powerpoint

Typed and double-spaced on standard-sized paper (8.5" x 11"), with 1" margins on all sides. You should use a clear font that is highly readable. APA recommends using 12 pt. Times New Roman font.

Include Title and Subtitle

Completed Tax Forms are required to be included

To assist with proper formatting use this sitehttps://owl.purdue.edu/owl/research_and_citation/apa_style/apa_formatting_and_style_guide/general_format.html

BUSINESS OWNER ADDITIONAL EARNING INFORMATION

The owner anticipate that they will receive compensation for their service under the new alternative organizational form. There the analysis should include the following: -

CompensationP1 & P2 $ 200,000

Business Charitable Contribution$10,000 annually

*** You are to ignore payroll and other personal taxes and the qualified business income deduction. You may mention that you ignored these in your analysis

BUSINESS OWNER'S PERSONAL INFORMATION

Name

Gems Record

Partner 1

Bobby Gem

Partner 2

Shawn Combs

Business

Address: P1

508Birch Circle, New York City, New York 10005

Address: P1

Johnson Close, Manhatthan, New York 10005

Address: P2

Brooklyn Height, Lower Manhatthan, New York 11201

Type of Business

Music Partnership

Occupation

Record Producers

Social Security number: P1

123-15-6891

Social Security number:P2

123-20-0289

Marital Status

Both are Single and 25 yrs old

Gems Record

Income Statements

For the Years Ended December 31, 2018

Net Sales

$1,300,924

Cost of Goods

455,323

Gross margin

$845,601

Plus: Sec 1245 depreciation recapture

$20,000

Less Operating expenses

Salaries

100,000

Depreciation

60,000

Rent expense

150,000

Business Liability Insurance

10,000

320,000

PARTNERSHIP ORDINARY INCOME

Before Guaranteed Payment

545,601

Less :Guaranteed Payment Gem

75,000

Guaranteed Payment Comb

65,000

PARTNERSHIP ORDINARY INCOME

405,601

ADDITIONAL INFORMATION:

Partnership Income

$405,600.60

PARTNERSHIP SEPARATELY STATE ITEMS

Rental Income

45,000

Expense Related to Rental Income

( 13,500)

Net Short-term Capital Gain

40,000

Net Long-term Capital Loss

( 20,000)

Sec. 1231 Gain

4,000

Charity

5,000

Dividend Income

5,000

Expense Related to Dividend Income

( 1,250)

64,250

TAXABLE INCOME

PARTNER1 TAX LIABILITY

PARTNER2 TAX LIABILITY

NET INCOME

1

Partners share their P&L 1:1 /Gem:Combs; Guaranteed Payment Gem $75,00, Combs $65,000

You may mention that you ignored these in your analysis

You are to ignore payroll and other personal taxes and the qualified business income deduction.

You may mention that you ignored these in your analysis

2

USE THE 2018 TAX RATE SCHEDULE LOCATED IN THE FRONT COVER AND BACK COVER

OF YOUR FEDERAL TAXATION 2019 TEXT BOOK