Facts:

Ellie and Linda are equal owners in Otter Enterprises, a calendar year business. Ellie has a basis in Otter Enterprises of $80,000 at the beginning of the year. Linda has a basis in Otter Enterprises of $60,000 at the beginning of the year. Assume that Otter Enterprises has no debt. Otter Enterprises has $320,000 of gross income and $210,000 of operating expenses. In addition, Otter has a long-term capital gain of $15,000 and makes distributions to Ellie and Linda of $25,000 each.

Required:

Discuss the impact of this information on the taxable income of Otter, Ellie, and Linda if Otter is:

1. A partnership.

2. An S corporation.

3. A C corporation.

Include in your discussion (1) the amount and character of any income recognized by Ellie, Linda, and Otter (including Otters taxable income and the amount of any tax paid by Otter) in each business entity form; and (2) Ellie and Lindas basis in Otter Enterprises at the end of the year in each business entity form. Show your work and clearly label your answers.