>um: Discussion 3: Choosing a Flow-Through Entity and the Effects of Tax Reform FORUM DESCRIPTION Original Post* Stance: For the Original Post*, in at least two paragraphs, knowing what you have studied so far in this course, which flow-through entity type would you choose for a new business - partnership or S corporation? Compare the various legal, nontax, and tax characteristics of partnerships and S corporations specifically using the table at the end of Chapter 15 and any other resources you use to formulate your response, as long as you document where you found your information. Consider flexibility, complexity, Section 199A, and ownership differences, among others. Does the recent tax reform legislation influence your decision? Provide enough detail/information so that your classmates can provide a response/reply. NOTE: You will not be able to see any of your classmates' Original Posts* prior to posting your Original Post*. This better ensures that all Original Posts* are unique and adds a greater variety of responses for you to reply to on the Reply Post*. Question 1-Module 6 Homework (Chapter 18-Connect 203 of 415 > EXHIBIT 15-3 Comparison of Tax Characteristics across Entities Characteristic Owner limits Rank Owner contributions of appreciated property to entity Rank 113 C Corporation At least one shareholder. Entity Taxed as Partnership At least two owners. 2 Tax deferred Tax deferred to 10: owner shareholder if certain requirements are met. Class AC 302 Summer 2022 in Connect Sole S Corporation Proprietorship Not more than 100, no 1 N/A corporations partnerships. nonresident aliens, or certain Tax deferred to shareholder if certain requirements afe met 23 N/A N/A N/A Other Tax Characteristics Aa Summary Limitations are least strict for C corporations and most strict for S corporations. S corporations are the only entity with significant owner limitations. More detail for this factor is discussed in the s Corporations chapter This factor favors entities taxed as partnerships because partners an not required to meet special requirements in order to avoid recognizing gain on the contribution of appreciated property to the partnership, but shareholders of both C and S corporations are required to meet certain requirements to avoid recognizing gain on such contributions to the corporation, More detail for this factor is provided in the Corporate Formation, Reorganization, and Liquidation, the Forming and Operating Partnerships, and the S Corporations chapters 6 Rank Accounting periods Rank Overall accounting method Generally, any tax year that ends on the last day of any month. N/A Must use accrual method unless uverage annual gross receipts are $26 million of less 3.4 Generally, must use tax year that t matches tax year of owners (special rules when not all owners have same tax year-end) Generally, allowed to use cash or accrual method. 2 Calendar year Class AC 362 Summer 2022 in Connect 9 2 Generally. allowed to use cash or accrual method. CONS 23 N/A Generally a calendar year. N/A Cash or accrual method Other Tax Characteristics C corporations generally have the most flexibility to select their yea end. But because C corporations are not flow through entities, this i not a real advantage or disadvantage from a tax perspective Partnerships generally are not free to choose their year-end, but they can have a year-end that is a different year end from some of the owners. Because this allows some partners to defer reporting incom this factor favors partnerships over $ corporations. S corporations generally have the same calendar year-end as their shareholders. More detail for this factor is provided in the Business Income, D uctions, and Accounting Methods. the Forming and Operating Partnerships, and the s Corporations chapters Entities taxed as partnerships, S corporations, and sole proprietorships generally have more flexibility to choose their overa accounting method than do C corporations with average annual gross receipts over $26 million. The cash method makes it easier for these entities to plan the timing of income and expenses that does the accrual method. More detail for this factor is provided in the Business Income, Deductions, and Accounting Methods, the Aa Corporate Operations, the Forming and Operating Partnerships, and the Corporations chapters #tv alt 6 A 203 of 415 > Rank Allocation of income or loss items to owners Rank Share of flow- through entity debt included in basis of owner's equity interest. Rank Nonliquidating distributions of noncash property N/A N/A N/A N/A Gains recognized on distributions Allocations based on partnership agreement (can differ from ownership percentages) Increase basis in ownership interest by owner's share of entity's debt Generally no gain or loss recognized on noncash property Allocations based on stock ownership percentages 2 No increase in stock basis- for debt of entity Especial rules if shareholder lends money to S corporation) 2 Same as C corporation 1 N/A N/A N/A N/A N/A sempece Aa This factor applies to partnerships and S corporations only Partnerships have more flexibility than $ corporations to determine how to allocate income and loss items to entity owners. More detail for this factor is provided in the Forming and Operating Partnerships and the S Corporations chapters. Partners are allowed to increase the basis in their ownership interes by their share of the partnership's debt. S corporation shareholders generally are not. This factor favors partnerships over S corporation. More detail for this factor is provided in the the Forming and Operating Partnerships and the S Corporations chapters. This factor favors partnerships for distributions of appreciated and depreciated property. More detail for this factor is provided in the Corporate Tication: Nonliquidating Distributions, the Dispositions of Partnership Interests and Partnership Distribution 4 X E203 of 415 > Nonliquidating distributions of recognized noncash property Rank Liquidating distributions on distributions of appreciated property and losses disallowed on distributions of depreciated property. 2 Gain and loss recognized (certain losses disallowed) Generally no gain or loss recognized on noncash property distributions Generally no gain or loss recognized Same as C corporation. Gain and Joss recognized (certain losses disallowed) Rank 1 Rank under the ites hand on the particular characters (1) N/A N/A N/A N/A Other Tax Characteristics Aa 2 This factor favors partnerships for distributions of appreciated and depreciated property. More detail for this factor is provided in the Corporate Taxation: Noliquidating Distributions, the Dispositions of Partnership Interests and Partnership Distribution and the S Corporations chapters This factor tends to favor partnerships if the liquidating entities hav gain assets, and it tends to favor corporations of the entities have los assets. More detail for this factor is provided in the Corporate Formation, Reorganization, and Liquidation, the Dispositions of Partnership Interests and Partnership Distribution and the S Corporations chapters B >um: Discussion 3: Choosing a Flow-Through Entity and the Effects of Tax Reform FORUM DESCRIPTION Original Post* Stance: For the Original Post*, in at least two paragraphs, knowing what you have studied so far in this course, which flow-through entity type would you choose for a new business - partnership or S corporation? Compare the various legal, nontax, and tax characteristics of partnerships and S corporations specifically using the table at the end of Chapter 15 and any other resources you use to formulate your response, as long as you document where you found your information. Consider flexibility, complexity, Section 199A, and ownership differences, among others. Does the recent tax reform legislation influence your decision? Provide enough detail/information so that your classmates can provide a response/reply. NOTE: You will not be able to see any of your classmates' Original Posts* prior to posting your Original Post*. This better ensures that all Original Posts* are unique and adds a greater variety of responses for you to reply to on the Reply Post*. Question 1-Module 6 Homework (Chapter 18-Connect 203 of 415 > EXHIBIT 15-3 Comparison of Tax Characteristics across Entities Characteristic Owner limits Rank Owner contributions of appreciated property to entity Rank 113 C Corporation At least one shareholder. Entity Taxed as Partnership At least two owners. 2 Tax deferred Tax deferred to 10: owner shareholder if certain requirements are met. Class AC 302 Summer 2022 in Connect Sole S Corporation Proprietorship Not more than 100, no 1 N/A corporations partnerships. nonresident aliens, or certain Tax deferred to shareholder if certain requirements afe met 23 N/A N/A N/A Other Tax Characteristics Aa Summary Limitations are least strict for C corporations and most strict for S corporations. S corporations are the only entity with significant owner limitations. More detail for this factor is discussed in the s Corporations chapter This factor favors entities taxed as partnerships because partners an not required to meet special requirements in order to avoid recognizing gain on the contribution of appreciated property to the partnership, but shareholders of both C and S corporations are required to meet certain requirements to avoid recognizing gain on such contributions to the corporation, More detail for this factor is provided in the Corporate Formation, Reorganization, and Liquidation, the Forming and Operating Partnerships, and the S Corporations chapters 6 Rank Accounting periods Rank Overall accounting method Generally, any tax year that ends on the last day of any month. N/A Must use accrual method unless uverage annual gross receipts are $26 million of less 3.4 Generally, must use tax year that t matches tax year of owners (special rules when not all owners have same tax year-end) Generally, allowed to use cash or accrual method. 2 Calendar year Class AC 362 Summer 2022 in Connect 9 2 Generally. allowed to use cash or accrual method. CONS 23 N/A Generally a calendar year. N/A Cash or accrual method Other Tax Characteristics C corporations generally have the most flexibility to select their yea end. But because C corporations are not flow through entities, this i not a real advantage or disadvantage from a tax perspective Partnerships generally are not free to choose their year-end, but they can have a year-end that is a different year end from some of the owners. Because this allows some partners to defer reporting incom this factor favors partnerships over $ corporations. S corporations generally have the same calendar year-end as their shareholders. More detail for this factor is provided in the Business Income, D uctions, and Accounting Methods. the Forming and Operating Partnerships, and the s Corporations chapters Entities taxed as partnerships, S corporations, and sole proprietorships generally have more flexibility to choose their overa accounting method than do C corporations with average annual gross receipts over $26 million. The cash method makes it easier for these entities to plan the timing of income and expenses that does the accrual method. More detail for this factor is provided in the Business Income, Deductions, and Accounting Methods, the Aa Corporate Operations, the Forming and Operating Partnerships, and the Corporations chapters #tv alt 6 A 203 of 415 > Rank Allocation of income or loss items to owners Rank Share of flow- through entity debt included in basis of owner's equity interest. Rank Nonliquidating distributions of noncash property N/A N/A N/A N/A Gains recognized on distributions Allocations based on partnership agreement (can differ from ownership percentages) Increase basis in ownership interest by owner's share of entity's debt Generally no gain or loss recognized on noncash property Allocations based on stock ownership percentages 2 No increase in stock basis- for debt of entity Especial rules if shareholder lends money to S corporation) 2 Same as C corporation 1 N/A N/A N/A N/A N/A sempece Aa This factor applies to partnerships and S corporations only Partnerships have more flexibility than $ corporations to determine how to allocate income and loss items to entity owners. More detail for this factor is provided in the Forming and Operating Partnerships and the S Corporations chapters. Partners are allowed to increase the basis in their ownership interes by their share of the partnership's debt. S corporation shareholders generally are not. This factor favors partnerships over S corporation. More detail for this factor is provided in the the Forming and Operating Partnerships and the S Corporations chapters. This factor favors partnerships for distributions of appreciated and depreciated property. More detail for this factor is provided in the Corporate Tication: Nonliquidating Distributions, the Dispositions of Partnership Interests and Partnership Distribution 4 X E203 of 415 > Nonliquidating distributions of recognized noncash property Rank Liquidating distributions on distributions of appreciated property and losses disallowed on distributions of depreciated property. 2 Gain and loss recognized (certain losses disallowed) Generally no gain or loss recognized on noncash property distributions Generally no gain or loss recognized Same as C corporation. Gain and Joss recognized (certain losses disallowed) Rank 1 Rank under the ites hand on the particular characters (1) N/A N/A N/A N/A Other Tax Characteristics Aa 2 This factor favors partnerships for distributions of appreciated and depreciated property. More detail for this factor is provided in the Corporate Taxation: Noliquidating Distributions, the Dispositions of Partnership Interests and Partnership Distribution and the S Corporations chapters This factor tends to favor partnerships if the liquidating entities hav gain assets, and it tends to favor corporations of the entities have los assets. More detail for this factor is provided in the Corporate Formation, Reorganization, and Liquidation, the Dispositions of Partnership Interests and Partnership Distribution and the S Corporations chapters B