S Corporation V. USCorporation Case Digest

As a hybrid of partnerships and corporations, LLC’s provide limited liability for debts and flexibility to be taxed as a partnership or corporation (Staring and Naming a Business Presentation, 2012, Slide 5). Some specific advantages include being empowered authorities in the management of the business, diversity of members, limited liability, pass-through taxation, and less paperwork (appreciated by many). A drawback of this business structure is the need for a tailored operating agreement that specifies the specific needs of the

Our client, Individual #1, is currently earning $350k in gross receipts and $175k in gross profit, respectively, from his IT consulting business. In discussions with the client, we learned he wants to transition his sole proprietorship/LLC into either an S-Corp or C-Corp. I propose his reorganization as an S-Corp as although it limits his potential for equity investment, it provides both a liability and tax shield.

When it comes to partnerships Alex, Bill, Carl, and Devon will have two options- a general partnership or a limited partnership. Partnerships are beginning to be a business form of the past. Once upon a time, partnerships were “the default form of business and provided the benefit of pass-through taxation, but lacked the important feature of limited liability” (Chrisman, 2010, p. 465). In a general partnership, each partner associated with the entity will be held liable for their own business decisions as well as

Is a limited partnership treated as a separate entity for all purposes? If not, give an example of an instance in which a limited partnership is treated as an aggregate of its partners.

T, an individual taxpayer, plans to incorporate his farming and ranching activities, currently operated as a sole proprietorship. His primary purpose of incorporating is to transfer a portion of his ownership in land to his son and daughter. T believes that gifts of stock rather than land will keep his business intact. Included in the property he plans to transfer is machinery purchased two years earlier.

Location- Similar to the General Partnership, the Limited Partnership may be moved to another state easily. A new DBA filing must be made in the

11. [LO 1] Absent any special elections, what effect does a sale of partnership interest have on the partnership?

| If all members of a new foreign entity have limited liability, the entity is classified as an association taxed as a corporation.

4. Benefits of choosing to be S Corporation. According to Sec. 1361 and Reg.Sec. 1.1361-1, if Paula and Mary both consent to the special election made by the corporation, the corporation could be a S corporation so that in the first two years, Paula and Mary could use the loss to offset their income from other sources. If necessary, they could revoke the decision, turning the corporation back into C Corporation.

In determining whether or not XYZ should elect to become an S-Corp, there are many advantages and disadvantages and various tax consequences that need to be weighed. The biggest advantage in electing S status is avoidance of the double taxation associated with C-Corps. This means that items of income, deduction, gain or loss are pass through to its owners and the entity itself is not subject to tax, thus there is only one level of taxation, at the shareholder level. Other advantages of becoming an S-Corp include not having to deal with the alternative minimum tax that may applies to C-Corps with greater than $7.5 million in annual gross receipts, and not having to convert to the accrual method of accounting when average gross receipts exceeds

Anderson, K. E., Pope, T. R., & Kramer, J.L., 2010, Prentice Hall’s Federal Taxation 2010: Corporations, partnerships, estates, & Trusts, 23rd Ed, Upper saddle River New Jersey, Prentice Hall

Under the rules found in section 708, a partnership may terminate for federal tax purposes but continue legally. To constitute as a technical termination, an exchange of 50% or more of the interests in capital gains and profits must occur within 12 months. Once terminated, the partnerships’ assets and liabilities are viewed as having transferred to the new partnership in exchange for an interest in it. Immediately after, the ceased partnership is regarded as having dealt its newly acquired interests to the purchasing partner and the remaining partners. Say for example, if Jack and Jill each contribute 20,000 to form a partnership and a few years later Jack decides to sell his entire 50% stake to Jenny for 30,000, Jack and Jill are now seen

* The ownership of the partners is dissolved and they become mere employees who are responsible to the shareholders and Board of Directors

Generally, an entity is taxed as either a corporation or a partnership and in the past there were major differences between the two, specifically, limited liability. The main benefit of a corporation was limited liability, while a partnership was subject to individual liability for partnership debts. Partnerships began to devise new configurations that were aimed at limiting their liability. They succeeded in creating limited partnerships, which took the main advantage of a corporation and shared that advantage with partnerships. The elimination of the limited liability distinction between corporations and partnerships came the need for a new entity classification system. However, the basis of the old classification regulations was

According to the Partnership Act 1891 (SA), section 1(1), a partnership is defined in four sections. These sections relate to a business which includes any trade, occupation or profession that is carrying on involving continuity and system in common in terms of mutuality of rights and obligations with all the partners, and lastly with a view to profit, therefore resulting in an incorporated limited partnership. A corporation, however, is defined as a separate legal entity from its owners that also has the rights and responsibilities that an individual or a partnership entity possesses. This means that corporations and their shareholders have the right to participate in the profits, but will not be held accountable for the company’s debts and legal issues.