Final Submission: Memorandum With Appendix

In Module Nine, you will complete all necessary tax forms according to Section III of the critical elements. You will then submit a comprehensive memorandum to the client that covers all critical elements and includes an appendix of IRS tax forms and schedules necessary to support your advice. You may also submit tax forms and schedules to illustrate the tax effects of continuing to operate the business as a sole proprietorship. The final submission should be a complete document containing all of the critical elements of the final project. Feedback gained during the course should be reflected in your final submission. This submission will be graded using the Final Project Rubric. Note: The textbook includes tax return forms for the prior year in the appendix because of publishing deadlines. Use the tax forms available in the textbook to arrive at your answers.

TAX 655 Final Project Guidelines and Rubric Overview The final project for this course is the creation of a memorandum with an appendix of supporting IRS forms and schedules. Working as an accounting associate in a financial organization requires the ability to apply accounting knowledge in unique ways. Being able to identify issues and communicate them effectively with members of your team and clients is essential for any financial career working in a privately held enterprise or working with privately held clients. In the final project, you will demonstrate your ability to communicate your tax efficient investment and business strategy recommendations to a client. Your proposed strategy could save the client and his family millions of dollars over time, so it is imperative that you utilize your tax research skills and maintain compliance with all governing rules and regulations. The project is divided into four milestones, which will be submitted at various points throughout the course to scaffold learning and ensure quality final submissions. These milestones will be submitted in Modules Two, Four, Five, and Seven. The comprehensive memorandum with appendix will be submitted in Module Nine. The project will address the following course outcomes: Recommend appropriate taxable entities, based on comprehensive tax research, for new businesses resulting in optimum solutions that meet clients' desired economic outcomes Evaluate tax consequences between liquidating and non-liquidating corporate distributions for identifying their impact on clients' tax returns consistent with governing rules and regulations Apply best practices in accounting and moral reasoning for liquidating a business resulting in the best economic solution for the owner Illustrate solutions for addressing tax consequences resulting from gifts and inheritances, while maintaining compliance with governing rules and regulations Prepare appropriate tax returns as they apply to various business entities that result in the best economic solution for clients Prompt You are working as an accountant at a mid-size CPA firm. One of your clients is Bob Jones. Bob's personal information is as follows: DOB: October 10, 1952 SSN: 444-00-4444 Marital Status: Single Home Address: 5100 Lakeshore Drive, Pensacola, FL 32502 Bob has a very successful used car business located at 210 Ocean View Drive in Pensacola, Florida. Last year, you filed a Schedule C for Bob that had $1,200,000 in taxable income. The business will have an income growth rate of 10% per year over the next several years. Bob's personal wealth, including investments in land, stocks, and bonds, is about $14,000,000. Last year, he reported interest income of $20,000 and dividend income of $6,000. The $14,000,000 includes land worth $9,000,000 that Bob bought in 1966 for $450,000. The stocks and bonds have a tax basis of $1,200,000 and they are currently worth $5,000,000. All of the investments have been owned for more than a year. In addition to his investments, Bob paid $140,000 for his home in 1972 and it is now worth $600,000. The used car business is currently valued at $53,000,000 including the land and building, which are worth $41,000,000. Bob's tax basis in the land and building is $2,000,000 and $400,000, respectively. The inventory is worth $12,000,000, with a cost basis of $5,000,000; the remaining assets, which include office furniture and equipment, make up the remainder of the business's total value. The office furniture and equipment are fully depreciated. Bob wants your professional advice regarding whether he should continue to operate as a sole proprietor or convert the business to a partnership, an S corporation, or a C corporation. Based on one of the business entities selected, Bob wants to include Mandyhis daughterin the business as an owner and manager with a possibility of 40% interest. One of his concerns is what would happen to his business after he passes away. Mandy's personal tax information is as follows: Mandy Jones DOB: June 30, 1990 SSN: 999-99-9999 Marital Status: Single Home Address: 5990 Langley Road, Pensacola, FL 35203 You will need to describe the tax and limited liability effects on a chosen business entity should Bob decide to reduce the amount of tax paid per year, as well as the protection of personal assets should there be a possible claim against the company's assets. Prepare a memorandum to the client, recommending a type of business entity, including an appendix of supporting IRS tax schedules and forms. Specifically, the following critical elements must be addressed: I. Memorandum A. Use logical reasoning based on your tax research to explain why the client should choose your recommended business entity. Consider referencing appropriate tax code and regulations. B. Defend your business entity recommendation by describing the accounting method. Consider the advantages and disadvantages of the business entity based on the following: 1. Cash basis vs. accrual 2. The cost to prep the returns 3. The tax benefits 4. The limited liability protection 5. Employee benefits C. Interpret the tax law pertaining to the type of business recommended and justify your recommendation using details consistent with tax law, code, and regulations. D. Explain the tax effect based on providing $180,000 per year for the client's salary and $70,000 per year for his daughter's salary if they withdraw cash from the business or pay dividends as appropriate. E. Justify the percentage of ownership the client's daughter should have in the business based on the type of business entity recommended. Consider the tax law in reference to the recommendation and how the decision will affect the daughter's tax return. F. Create a detailed tax planning proposal explaining how the client's family can experience tax savings should the client pass away. Cite relevant governing rules and regulations. G. Illustrate a strategic plan that addresses the need for a will in handling the estate. Detail what happens to the business, land, and investments consistent with tax codes and regulations. Consider extending the plan to address the client's estate tax, trust, and charitable contributions while minimizing estate tax. H. Recommend estate planning strategies consistent with tax codes and regulations for the purpose of reducing the taxable estate. Be sure to include gifting property to heirs in your response. I. Illustrate the best course of action if the client decides to leave the business in three years. Provide some advice to him should he decide to gift the business to his daughter or transfer the assets or common stock to her, depending on the business entity you have selected. J. Illustrate the best course of action if the client wishes to sell the business. Consider the tax consequences with regard to capital gains and losses, ordinary income issues, and selling an existing operating business. II. Conclusion A. Compare and contrast the advantages and disadvantages of the sole proprietorship, the partnership, the S corporation, and the C corporation as a tax vehicle that could meet the client's need for accounting information about the business. Consider providing justification for why the client would not necessarily choose the other business entities. B. Summarize the alternative involving the possibility of liquidating the business using rationale based on tax research, codes, and regulations. C. Summarize the alternative of transferring the business activity, providing justification based on tax research, codes, and regulations. III. Appendix: To further justify your professional advice regarding whether the client should continue to operate as a sole proprietor or convert the business to a partnership, an S corporation, or a C corporation, complete the appropriate tax schedules using the most current tax forms for the requirements below. A. Prepare Bob's Form 1040 with the appropriate tax schedules and Mandy's Form 1040 (based on the salary he wanted to pay her, $70,000 per year). Assume that you are filing the tax returns using sole proprietorship for the business entity and treating Mandy as an employee, regardless of your initial recommendation for this client. B. Prepare the appropriate forms in the event that the client decides to convert the business to a partnership, an S corporation, or a C corporation based on your recommendation. Also, include the tax effect, if any, of the money that the client and his daughter are taking from the business for their personal expenses. Include the owners' personal 1040 forms as well. C. Justify your recommendation using schedules and tax forms you completed by explaining how the forms and schedules result in the best economic solution for the client consistent with IRS code and regulations. Milestones Milestone One: Business Entity, Accounting Method, and Tax Laws In Module Two, you will submit a draft of your recommendation for the business entity you believe will meet the client's needs, based on your research. You will also select the accounting method that should be used to interpret the business transactions and for tax reporting. You will also need to summarize the tax law pertaining to the entity selected. This assignment will address Section I, Parts A, B, and C of the critical elements above. This milestone is graded with the Milestone One Rubric. Milestone Two: Tax Effects and Ownership Interest In Module Four, you will submit a draft explaining the tax effects of salaries if cash is withdrawn from a business. You must also explain the tax consequences of paying the owners based on the selected business entity, as well as the tax consequences for each individual's personal tax returns. This assignment will address Section I, Parts D and E of the critical elements. This milestone is graded with the Milestone Two Rubric. Milestone Three: Strategic Planning, Gift Taxes, and Disposing of a Business In Module Five, you will submit a draft of your tax planning proposal and strategic plan recommendation regarding the client's estate. You must also address the tax effects of selling the business prior to the death of the founder. This assignment will address Section I, Parts F through J of the critical elements. This milestone is graded with the Milestone Three Rubric. Milestone Four: Conclusion In Module Seven, you will submit a draft of your conclusion. You will compare and contrast the advantages of each type of business entity that the client may select, summarize the alternative involving the possibility of liquidating the business using rationale, and, finally, summarize the alternative of transferring the business activity providing justification based on tax research, code, and regulations. This assignment will address Section II of the critical elements. This milestone is graded with the Milestone Four Rubric. Final Submission: Memorandum With Appendix In Module Nine, you will complete all necessary tax forms according to Section III of the critical elements. You will then submit a comprehensive memorandum to the client that covers all critical elements and includes an appendix of IRS tax forms and schedules necessary to support your advice. You may also submit tax forms and schedules to illustrate the tax effects of continuing to operate the business as a sole proprietorship. The final submission should be a complete document containing all of the critical elements of the final project. Feedback gained during the course should be reflected in your final submission. This submission will be graded using the Final Project Rubric. Note: The textbook includes tax return forms for the prior year in the appendix because of publishing deadlines. Use the tax forms available in the textbook to arrive at your answers. Deliverables Milestone Deliverable Module Due Grading One Business Entity, Accounting Method, and Tax Laws Tax Effects and Ownership Interest Two Graded separately; Milestone One Rubric Four Graded separately; Milestone Two Rubric Five Graded separately; Milestone Three Rubric Seven Graded separately; Milestone Four Rubric Nine Graded separately; Final Project Rubric Two Three Four Strategic Planning, Gift Taxes, and Disposing of a Business Conclusion Final Submission: Memorandum With Appendix Final Project Rubric Guidelines for Submission: Submit your memorandum with standard formatting: 7-10 pages, double-spaced, in APA format, with one-inch margins, 12-point Times New Roman font, and an appendix containing electronic versions of the appropriate IRS tax schedules and forms. Instructor Feedback: This activity uses an integrated rubric in Blackboard. Students can view instructor feedback in the Grade Center. For more information, review these instructions. Critical Elements Memo: Business Entity Exemplary Meets \"Proficient\" criteria and references appropriate tax code and regulations in justification (100%) Proficient Explains why the recommended entity is the most appropriate choice using logical reasoning (90%) Memo: Accounting Method Meets \"Proficient\" criteria and details cover the advantages and disadvantages (100%) Defends the decision to choose the recommended entity by describing the accounting method (90%) Needs Improvement Explains why the recommended entity is the most appropriate choice but details either lack relevance or are cursory (70%) Defends the decision to choose the recommended entity but details are inaccurate or cursory (70%) Not Evident Does not explain why the recommended entity is the most appropriate choice (0%) Does not defend the decision to choose the recommended entity (0%) Value 6 6 Memo: Tax Law Memo: Tax Effect on Cash Withdrawals or Dividends Memo: Percentage of Ownership Memo: Tax Planning Proposal Meets \"Proficient\" criteria and details illustrate versatility of thought when using tax law, code, and regulations (100%) Meets \"Proficient\" criteria and provides, in detail, more than one option (100%) Meets \"Proficient\" criteria and details explain how the decision will affect the client's daughter's tax return (100%) Meets \"Proficient\" criteria and details include relevant governing rules and regulations (100%) Memo: Strategic Plan Meets \"Proficient\" criteria and extends the plan to address the estate tax, trust, and charitable contributions while minimizing inheritance tax (100%) Memo: Estate Planning Strategies Meets \"Proficient\" criteria and details exemplify gift-giving strategies that reduce the taxable estate (100%) Memo: Gift or Transfer the Assets Meets \"Proficient\" criteria and provides justification of both the gifting and transferring of assets (100%) Interprets tax law pertaining to the selected business entity using tax law, code, and regulations as justification (90%) Explains the tax effect based on providing the client and his daughter salaries if they withdraw cash from the company or pay dividends (90%) Justifies the percentage of ownership the client's daughter should have based on the business recommended (90%) Creates a tax planning proposal explaining how the family can experience tax savings should the client pass away (90%) Illustrates a strategic plan that addresses the need for a will in handling the estate, which includes the business, land, and investments, consistent with governing code and regulations (90%) Recommends estate planning strategies consistent with governing code and regulations, including gifting property to heirs (90%) Illustrates the best course of action the client should take including advice on gifting or transferring assets if he leaves the business in three years (90%) Interprets and justifies tax law pertaining to the selected business entity but details are either inaccurate or irrelevant (70%) Explains the tax effect based on providing the client and his daughter salaries but details are inaccurate or cursory (70%) Does not interpret and justify tax law pertaining to the selected business entity (0%) 6 Does not explain the tax effect based on providing the client and his daughter salaries (0%) 6 Justifies the percentage of ownership the client's daughter should have but details are irrelevant or cursory (70%) Creates a tax planning proposal but details are inaccurate or irrelevant (70%) Does not justify the percentage of ownership the client's daughter should have (0%) 6 Does not create a tax planning proposal (0%) 6 Illustrates a strategic plan that addresses the need for a will, but details lack coverage of business, land, or investments or are not consistent with governing code and regulations (70%) Recommends estate planning strategies but details are inaccurate or cursory (70%) Does not illustrate a strategic plan that addresses the need for a will (0%) 6 Does not recommend estate planning strategies (0%) 6 Illustrates a course of action the client should take if he leaves the business in three years but details are either inaccurate or irrelevant (70%) Does not illustrate the best course of action the client should take if he leaves the business in three years (0%) 6 Memo: Sell the Business Conclusion: Advantages and Disadvantages Conclusion: Liquidating the Business Conclusion: Transferring the Business Activity Meets \"Proficient\" criteria and addresses ordinary income issues, and capital gains and losses consistent with tax code and regulations (100%) Meets \"Proficient\" criteria and shows keen insight into the advantages and disadvantages of choosing the other business entities (100%) Meets \"Proficient\" criteria and is written in an appropriate voice for the target audience (100%) Meets \"Proficient\" criteria and is written in an appropriate voice for the target audience (100%) Appendix: Form 1040 and Tax Schedules Appendix: Forms to Convert the Business Appendix: Justification of Schedules and Tax Forms Meets \"Proficient\" criteria and references relevant IRS code and regulations (100%) Illustrates the best course of action if the client wishes to sell the business and includes tax consequences when selling an existing operating business (90%) Compares and contrasts advantages and disadvantages of all the business entities as tax vehicles to meet the client's needs (90%) Summarizes the alternative choice involving liquidating the business, using tax research, governing rules, and regulations (90%) Summarizes the alternative choice involving transferring the business activity using tax research, governing rules, and regulations (90%) Prepares the appropriate pages of Form 1040 and the tax schedules accurately and completely based on the sole proprietorship business entity (100%) Prepares the appropriate remaining forms for a partnership, S corporation, or C corporation accurately and completely (100%) Justifies the selected schedules and tax forms by explaining how the schedules and forms result in the best economic solution for the client (90%) Illustrates a course of action if the client wishes to sell the business, but details are inaccurate or cursory (70%) Does not illustrate a course of action if the client wishes to sell the business (0%) 6 Compares and contrasts advantages and disadvantages of all the business entities but details are either incomplete or inaccurate (70%) Summarizes the alternative choice involving liquidating the business but details are either unclear for target audience or cursory (70%) Summarizes the alternative choice involving transferring the business activity but details are either unclear or cursory (70%) Does not compare and contrast advantages and disadvantages of all the business entities (0%) 6 Does not summarize the alternative choice involving liquidating the business (0%) 6 Does not summarize the alternative choice involving transferring the business activity (0%) 6 Prepares the appropriate pages of Form 1040 and tax schedules based on the sole proprietorship business entity but details are either incomplete or inaccurate (70%) Prepares the appropriate remaining forms for a partnership, S corporation, or C corporation but details are incomplete or inaccurate (70%) Justifies the selection of the schedules and tax forms but details are either inaccurate or cursory (70%) Does not complete the appropriate pages of Form 1040 based on the sole proprietorship business entity (0%) 6 Does not prepare the appropriate remaining forms (0%) 6 Does not justify the selection of the schedules and tax forms (0%) 6 Articulation of Response Submission is free of errors related to citations, grammar, spelling, syntax, and organization and is presented in a professional and easy-toread format (100%) Submission has no major errors related to citations, grammar, spelling, syntax, or organization (90%) Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas (70%) Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas (0%) Total 4 100% Running Head: SOLE PROPRIETORSHIP FORM OF BUSINESS 1 A sole proprietorship is the modest type of business possession. Not astonishingly, the gigantic majority of lesser firms start their existence as single proprietorships. A single proprietorship has nevertheless one proprietor. That solitary owner may involve in several forms of legal commerce activity anytime and anywhere. Other than, the numerous local and national business certificates that every enterprise must procure irrespective of form of possession, no legal procedures are necessary to start or function the business as compared to other forms of business such as public corporations and private companies (Sitarz, 2005). The proprietor is accountable for safeguarding and capitalizing the resources for the commerce. These moneys may come from the proprietor's current or hired monetary resources. A proprietor of a solitary proprietorship acquires to save all profits resultant from the business as compared to partnership where the profit is shared among the partners. The proprietor may even share any ration of the gains and losses with extra individual or individuals. The proprietor has the right to make every decision involving the business as compared to public limited company where decision is made by board of directors. However, there are no coowners hence it is not necessary to grip policy-meeting conferences or form any collection comparable to a board of directors. The proprietor may lease staffs or work with autonomous advisers and still hold the single proprietorship system of possession. Even if these staffs or self-governing specialists are invited to provide their views connecting to the organization's commercial decisions, the thoughts are taken to be only approvals. The proprietor cannot renounce any accountability for the results raised by these approvals. SOLE PROPRIETORSHIP FORM OF BUSINESS 2 All the same, nothing lacks disadvantages. Thus sole proprietorship have Unlimited liability and that means the properties of the owner can be used to pay e business debts. This is the chief disadvantage borne by the single proprietorship as compared to other business forms such as the public and private companies that have limited liability (Frankfurter at al., 2007). The proprietor is monetarily accountable for sustaining all operation arrears or losses suffered by the business, even to the point of forgoing his or her private or other commercial welfares to recompense any debt. The proprietor, of course, must tolerate the tasks that accrue from the choices made. He makes all the decisions pertaining to the business and sometimes he may not be right, therefore in case of wrong decision he suffers alone as compared to other forms business such as public companies where decision is made by the board of directors. The sole proprietorship can only be liquidated any time of wish. Such as when the sole proprietor fails to pay his or her debts, the business can be transferred to another person without many formalities (Collins, 2009). The government only issues the sole proprietor with an operating license that is acquired annually as form of paying tax but any other person rather than the registered one can acquire the certificate. This therefore necessitates liquidation process. If the business is transferred from one person to the other, the debts must be paid by the former proprietor because he has unlimited liability. The business activities can be transferred from one person to another at any instance, reason being that very few legal formalities are linked to the enterprise. There are no documents to sign or any restriction of who should own or carry out the firm's business as compared to the public company where various documents such as memorandum of association and articles of association has to be signed. This form of business is free to enter and to exit. The government does not restrict its ownership and operations too. SOLE PROPRIETORSHIP FORM OF BUSINESS 3 References Frankfurter, G. M., Wood, B. G., & Wansley, J. W. (2007). Dividend policy: Theory and practice. San Diego, CA: Academic Press. Collins, K., & Shemko, J. (2009). Exploring business. Toronto: Pearson Canada. Sitarz, D. (2005). Sole proprietorship: Small business start-up kit. Carbondale, Ill: Nova Pub. Co. S-Corporation 1 Tax Planning Proposal for S Corporation Here, Bob Jones's planning to transfer his business venture of S-Corporation by considering the Tax requirement that he doesn't to be a burden to his family and he is concerned about his death that's why wanted to distribute his Company's sharing to his daughter as an owner and want to hire a manager who can manage this business with 40% interest. Currently, his Company valued at t $53,000,000. This was an efficient efforts to covert this business in S-Corporation and now, his successive planning will come under the enactment of the American Taxpayer Relief Act (ATRA) that was proposed by Federal government in 2013. His Company will get tax exemption set at $5.43 million after his death in the year when he will die. Also, there are coupled of gift tax exemption of the same amount however, there are only few S-corporation come under Federal Estate Tax and according to Federal Government tax regulations for which he has to submit few documents such as, McEowen R. (2015); Buy-out agreement Will have to consider Not Making Gifts of Business Interests Will have to make his daughter as shareholder of the Company Due to limitation of business amount he has also need to make himself as shareholder before his death. Importantly, he has to the consider IRS guidelines which are under; [1] I.R.C. 336. [2] I.R.C. 1366(a). [3] I.R.C. 1367(a)(1). [4] I.R.C. 334. S-Corporation 2 In order to run his business under S-corporation and take the advantage of the shareholder's capital loss, and its gain must be considered for the same tax year, \"SOI Tax StatsS Corporation Statistics\". Strategic Planning Everybody knows in general, S-corporations doesn't divide among shareholders after the death of the owner means the deceased shareholder's estate can be able to leverage the steppedup basis of the deceased shareholder's stock to reduce tax on the sale of the assets. Therefore, to increase the liquidate, Bob has to transfer all the land and buildings even worth-able property in the name of his daughter, \"How to Step Up Basis Upon the Death of an S Corporation Shareholder\". Additionally, should distribute assets before his own death and later then it will be considered as a sale and a payment in exchange for the deceased shareholder's stock means a demand sale results will pass through the estate of the deceased shareholder under Code 1014. Estate Planning Strategies After Bob's on a part of counting his daughter as owner then his daughter or estate will automatically treated as a single shareholder. Additionally, manager will be treated for 40% interest from profit only. Now, their salaries will come under S-Corp and are subject to FICA tax (Social Security & Medicare tax) which currently count with 15.3 percent and except this amount Company will now come under distribution of additional profits which can be done without having any further FICA tax liability for the Company but they have to fill the Form S-Corporation 3 1120S along with IRS tax norms and a copy of the shareholders part should be delivered with Schedule K-1. After this, they require to fill only state income tax on earned value. Bob can help his daughter in tax exemption in landing, building, and other non-asset value by considering them as gift plan and give her under IRS rules and guidelines such as, McEowen R. (2015); [1] I.R.C. 336. [2] I.R.C. 1366(a). [3] I.R.C. 1367(a)(1). [4] I.R.C. 334. Transfer the Assets Historically, S-Corporation transition planning is difficult and require special attention in order to meet the distribution and tax exemption criteria for S-Corporation. For instance considering this case, it will eliminate Bob's own potential legal liabilities in the business means after considering the offer as gift things then it will be complicated either through Federal Estate Tax exemption of self-liability reduction. Under the IRS, Bob can get tax exemption on tangible property and can easily gift to his daughter but corporation should be taxed on a distribution of intangible assets (i.e., goodwill) under I.R.C. 311. In past, in the case of Cavallaro v. Comr., T.C. Memo. 2014-189, IRS asserted that no technology transfer had occurred and that the merger resulted in a gift from the parents to the son of $29.6 million. S-Corporation 4 Sell the Business This S-corporation based firm counted as individual business and requires individual tax return on business. Therefore, the Bob's business selling require to pass through and report as a capital gain means cannot be counted as ordinary income on individual tax returns which significantly defined under IRS S-Corporation regulations and now, S-Corporation comes under capital gain tax which will determine by Bob's firm stock basis, Karlinsky S. (2013). In IRS shareholders rules, S corporations bar regular C corporations from owning stock in S corporations and it will restrict under IRS code "338(h)(10) election" means purchase of SCorporation would happen through regular C-Corporation and all entities must come under 338(h)(10) election. However, firm's asset sale will under "38(h)(10) elections" which require to assign the valuations to all of the assets of the Bob's firm such as; inventory, fixed assets, customer lists and intangible assets. S-Corporation 5 References \"Karlinsky S. (2013). Current Developments in S Corporations, S-Corporations. Retrieved fromhttp://www.thetaxadviser.com/issues/2013/oct/karlinsky-oct2013.html McEowen R. (2015). Estate and Succession Planning With S Corporations. Retrieved fromhttps://www.calt.iastate.edu/article/estate-and-succession-planning-s-corporations BUSINESS ENTITIES Sole proprietorship This is the simplest ways of starting your business. The business is owned by one individual. Advantages The owner will receive all profits There is few documents that are required to start the business It is easier to start up an lower the costs of starting because of lower filing fees The owner has the ability to make all the decisions that pertains the entity. The owner will not be taxed twice but it will be taxed as personal income taxes. Disadvantages The owner is responsible for all business costs which may limit the operations of the entity The business is also exposed to limited liability and it is at risk of closing down easily When the owner dies then the business will cease to exist unless transferred to heirs Partnership Thus is the form of the business that is formed by two or more persons. The partners will run the entity's operations. Advantages Partners will pay taxes from their income and the business will not be taxed therefore, there will be no double taxation. This will save the partners a lot of income to invest. There is increased ability to raise the funds because of owner's contribution There is a limited liability Disadvantage Partnerships do not have special tax treatment. For example contributions to charity organizations will not be deduction during taxation Partners will not also withdraw or use firm's resources unless allowed by the other partners. S Corporation A business may opt to be S Corporation so as to avoid the taxation at corporate level and therefore avoids double taxation. Advantages The income is taxed at the shareholders level and not at corporate level like in other corporations. Therefore, there is no double taxation Shareholders are not liable to the debts of entity. If the entity fails, then the shareholders may lose all the investment but they are no liable to the firm's debts. Disadvantages Like C Corporation, it has to file articles of incorporation at a fee. Any contribution that is made to the charitable organization will not be deducted when determining the net taxable income. C Corporation This is an entity that is different from its owners and remains to be a legal entity. C Corporation is a legal entity that is able to transfer property. Advantages The entity is allowed to deduct up to 75% of any contribution that is made to charitable organization There is pooling of capital and therefore the firm has an advantage of raising enough capital for business operations. Disadvantages The entity is taxed at both corporation level and the shareholders are also taxed from the proceeds they receive. This is a double taxation which affects the sustainability of the organization. The articles of incorporation must be submitted to the Minnesota Secretary of State together with the filing fee. Alternative involving the possibility of liquidating the business, using rationale based on tax research, codes, and regulations Alternatives for Avoiding Double Taxation One of the ways in which entities could liquidate a C Corporation, the entity can elect a S Corporation or restructure the entity to a tax-free divisive D. This is in line with the taxation codes Sec. 137 which imposes corporate tax levels on C Corporation. Taxation codes (Secs. 368(a)(1)(D) and 355) allows entities to take a divisive D reorganization which will splits the entity into several business lines instead of being liquidated. This will save the entity from coming into extinction. In conclusion, I concur with Fonfara, J. P., & McCool, C. R. (1988), that the S Corporation offers the best choice because of its nature on taxation benefits. It will ensure that the shareholders will receive maximum returns. Alternative of transferring the business activity, providing justification based on tax research, codes, and regulations. Purchase of Stock Sec. 338 allows the Corporation to consider a stock purchase where the purchase of the 80% (voting power) of the stock of the target is treated to be liquidated. This method is preferred as opposed to the sale of assets as a way to transfer business ownership. Though firms may also sell assets while maintaining the corporation intact, it would be expensive since any appreciation of assets will be taxed at a corporate level. Part 2: Tax Memorandum using S corporations A. Tax effect A father providing $180,000 per year for the client's salary and $70,000 per year for his daughter's salary by withdraw cash from the business or pay dividends should be advised to take S corporation as his business entity. S corporation comprises a number of appealing benefits of tax and still provides a corporation's liability protection to the business owners. The obtained losses and income are transferred to shareholders along with reporting on the individual tax returns in the case of S corporation (Wahab & Holland, 2012). If the father chose to pay the salaries using withdraw cash for the business, it is suitable and easy for him. When using withdraw cash from business, Income is readily taxable once it has been received and the expenditures deductible are paid immediately. However, there are a number of requirements that needs to be fulfilled and therefore, it implies higher tax service and legal costs. Moreover, in withdraw cash business the company shareholders and employees enjoy protection of full limited liability. Their individual assets cannot be utilized for paying for the corporations' losses. If pay dividend mode is used by the father, chances of double taxation associated with the corporate income along with dividends from shareholders are very minimal (Schenk, 2014). However the dividend pay mode also requires the business to file numerous forms and tax schedules comprising IRS form 2553 and form 1120S U.S. income tax return for an S corporation which raises the tax margin. B. Percentage of ownership Based on S corporation business entity, the client's daughter percentage of ownership is calculated by the capital contribution of each individual. It is this capital contribution that determines each shareholder's ownership percentage. Percentage of ownership is acquired as a ratio of individual contribution to the total contribution. Moreover, the daughter can have a Percentage of ownership if she buys shares from, or sell shares to, other shareholders. Since the S-corporation can only have at 100 shareholders, the pool of available trade partners is limited. This can be an advantage, as the number of transactions necessary to effect a significant change in ownership percentage is low. Since ownership is so concentrated, there are few options for an individual to acquire an S-corporation's stock. This could also be a disadvantage since the shareholders may not be willing to sell or may demand high compensation for their shares. The limited liability and tax effects of S corporations comprises that the corporations passes all losses, deductions and corporate income to the shareholders for federal taxation. This means that the client's daughter would report the income and losses to her personal tax returns. Finally, there have been certain recent changes in tax regulation and law result in the formation of the Small Business Job Protection Act of 1996 that has made the S corporation eyecatching for the entrepreneurs and business owners (Schenk, 2014). S corporations were restricted to 35 shareholders previously, though the shareholders were increased to 75 by the tax law of 1996. This increment in the number of shareholders enables more investors to join business; thus, it results in more capital in the business. References Albert L. Grasso, R. Barry Johnson, and Lewis A. Siegel, published by Thomson Reuters/Tax & Accounting, Carrollton, Texas, 2014 ( 800-431-9025) Graham, J. R., Raedy, J. S., & Shackelford, D. A. (2012). Research in accounting for income taxes. Journal of Accounting and Economics, 53(1), 412-434. Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. The Journal of Law & Economics, 26(2), 301-325. Fonfara, J. P., & McCool, C. R. (1988). Wyoming Limited Liability Company: A Viable Alternative to the S Corporation and the Limited Partnership, The. Land & Water L. Rev., 23, 523. Schenk, D. H. (2014). Federal taxation of S corporations. New York, NY: Law Journal Press. Schlesinger, M. R. (1947). \"Thin" Incorporations: Income Tax Advantages and Pitfalls. Harvard Law Review, 61(1), 50-87. Wahab, N. S. A., & Holland, K. (2012). Tax planning, corporate governance and equity value. The British Accounting Review, 44(2), 111-124. With the information provided about the type of business Mr. Jones is wanting to conduct with his daughter Mandy, I recommend for him to form an S corporation. S corporations maintain some very helpful tax benefits while also allowing the business owners to keep the liability protection that corporations have. This liability protection means that the personal assets of the owner/shareholders cannot be expected to be used to pay the losses of the business entity. In an S corporation both the income and losses acquired by the business are passed to the shareholder/owners. It is then reported on the tax returns of each individual owner proportionately (Toner, 2015). This would mean that Bob would not have to bear the full tax burden or losses that his business may incur. While prior to1996 S corporations were limited to 35 owner/shareholders, after the Small Business Job Protection Act of 1996 this was increased to 75 owner/ shareholders (Schenk, 2014). This allows for the possibility of adding more investors down the road to add extra capital for future growth. Another reason that I would advise Mr. Jones to form a S corporation is that he does not maintain inventory in his business. This makes it better for him to utilize the cash accounting method instead of the accrual method. Income is taxable as it is received and expenses paid with the cash method (Anonymous,1993). While there are the benefits of pass through taxation and limited liability protection, S corporations also have some disadvantages that Mr. Jones should be aware of. There are some requirements that must be followed that may lead to both higher tax service and legal costs. There is an expectation to file articles of incorporation, as well as to have periodic shareholder meetings. The legal costs would still be the same for a standard corporation (Schenk, 2014). The costs of preparing tax returns will actually be lower than that of a standard corporation. S corporations only have to file taxes once a year, as opposed to the requirement to file quarterly for standard corporations. The pass through taxation of S corporations means that all income, losses, and deductions are passed to the owner/shareholders for federal taxation on their personal income tax returns. This gives the advantage to the owner /shareholders of avoiding double taxation like the owner/shareholders of standard corporations have to pay. Standard corporations are taxed at the business entity level first. When the business pays out dividends the shareholders are then individually taxed on that income (Schenk, 2014). In addition to state legal filings to become an S corporation, Mr Jones would be required to file IRS form 2553 with the IRS to be taxed as an S corporation. When filing their taxes the business entity will file form 1120S which is a notification to the IRS what income, losses, and deductions are being carried through and in what percentages to what owners. References Anonymous. (1993). Accrual Versus Cash Method. Small Business Reports, 18(12). Schenk, D. H. (2014). Federal taxation of S corporations. New York, NY: Law Journal Press. Toner, N. (2015). S Corporation Corner. Journal of Passthrough Entities, 18