Peter and Luke are starting a law firm together. Peter will provide legal help to businesses and Luke to provide legal help to individuals, they have a third friend Andrew who will be an investor in the firm but will not provide clients with legal services.

 
In addition, Andrew wants to be allocated all municipal bond interest and the majority of debt interest. Peter plans to work 100% of his time and energy in the business and Luke plans to work only 30-50% of the time. Peter wants to get paid more and be guaranteed money every year since he will have no side income like Andrew and Luke do.

 
They also plan to use the building contributed by Andrew for their office building. They will use one floor for office space and the other floors to rent out to other tenants and collect passive rental income.

 
Advise in a letter what Peter, Luke, and Andrew should do how they should set up their business, and what tax impacts may arise. They must decide which legal entity they want to set up (Partnership, LLC, LLP or S Corporation, or C Corporation).

 

Write a professional letter and provide references to primary and secondary sources.

Peter has no capital to invest in the partnership, so he will contribute services and $4,000 cash.
Andrew will contribute the largest capital of $40,000 plus a building with an FMV of $1,000,000 and basis of $200,000 and a liability of $350,000 on the building.
Luke will contribute stock in Apple with an FMV of $55,000 and a basis of $10,000.