The President of UCLA has come to you for some personal tax and financial advice about a side
project he is considering. He and a college friend are passionate about the advantages of
businesses using data analytics to make business decisions. His friend has recently retired from
a successful career in the NBA, and he is interested in working in the business. They would like
to start a business together to provide data analytics consulting services. They anticipate that
the business will incur losses in the first two years due to initial startup costs and marketing
expenses but expect profits in subsequent years as the business grows.
The President is seeking advice on choosing the optimal tax entity for their new business
venture. They are considering forming either a partnership, limited liability company (LLC), S
corporation, or C corporation. Each entity type has its advantages and disadvantages,
particularly concerning taxation, liability, and management structure.
Background Information:
? The President, and his friend, each plan to invest $200,000 in the business as initial
capital.
? They expect the business to incur a taxable loss of $40,000 in the first year and $10,000
in the second year.
? The business projects profits of $60,000 in the third year, increasing to $150,000 in
subsequent years.
? Both the President and his friend have other sources of income and are in the 32%
federal income tax bracket for ordinary income and the 15% bracket for long-term capital
gains. The tax rate paid to the state on all forms of income is 8%.
? C corporation tax rates are 21% for federal tax purposes and 8% for state income tax
purposes.
? In the years the business generates a profit, assume all profits are distributed to the
owners. 50% of the profit is distributed as a guaranteed payment for services for entities
taxed as partnerships, and for corporations 50% of the profit is distributed as a wage. No
distributions of any type are made in loss years.
? Self-employment tax rates and payroll tax rates are a total of 15%. If wages are paid, it
should be assumed that the corporation (employer) pays one-half of the payroll taxes
(7.5%), and the employee pays the other half (7.5%).
? Assume taxable income is equal to available cash flow.
? Both the president and his friend plan to materially participate in the business for
purposes of the passive activity loss rules under § 46

Required:
1. Comparison of Tax Attributes:
? Research and analyze different tax entity options including partnerships, LLCs, S
corporations, and C corporations.
? Compare and contrast the income tax liability of each entity structure, including
the deduction for qualified business income, for the company's first four years
? Create a comparison of the after-tax cash available to the business owners for
each of the first four years. Include the impact of self-employment taxes and
payroll taxes in your analysis. Also make a summary showing the total after-tax
cash available to the owners for each entity structure over the first four years.
2. Nontax Considerations:
? Explain the nontax advantages and disadvantages of the various business forms.
This should include an assessment of the asset protection and liability
implications of each entity structure.
3. Recommendation and Justification:
? Based on your analysis, make a recommendation to the President as to the most
appropriate tax entity structure for the business. Justify your recommendation
with reference to tax efficiency, asset protection, operational flexibility, and other
relevant factors.
Deliverables:
1. Tax Planning Memo
oPleas make a  tax planning memo using the tax memo template that addresses the
required items above.
• As part of the Memo, prepare an appendix analyzing after-tax cash flows
for each of the entity types under consideration for each year, as well as a
summary for the four years.
2. Executive Summary
o At the end please make a one-page executive summary to provide to the client, ensuring there is