Choice of Entity. Danny Santucci

Transcription

1 Choice of Entity Danny Santucci

2 Table of Contents Chapter 1 Sole Proprietorship... 1 Learning Objectives... 1 Introduction... 1 Advantages... 1 Disadvantages... 1 Formation... 1 Start-Up Expenses... 2 Withdrawals... 2 Schedule C... 2 Not-For-Profit Activities... 2 Deduction and Loss Limit... 3 Category Category Category Profit Presumption 3/ Schedule C-EZ... 5 Individual Rates... 5 Due Date - Form Extension to File - Form Business Entity Impact... 6 Self-Employment Tax... 6 Incorporation... 7 S Solution... 7 Estimated Tax... 7 Underpayment of Tax - Form Sale of a Business... 8 Classification of Assets... 8 Other Business Dispositions... 8 Income Splitting... 8 Estate Planning... 8 Review Questions... 9 Review Answers Chapter 2 Partnerships Learning Objectives Introduction Definition of Partnership Section 761(a) Co-tenancies Partnership Agreement Modifications Partner s Share of Tax Items Limited Partners Family Partnerships - 704(e) Publicly Traded Partnerships Advantages Disadvantages Exclusion from Partnership Treatment Complete Exclusion Election Partial Exclusion Election Partners Taxed as Individuals Exception Separate Entity for Some Purposes i

3 Individual Returns and K-1s Partnership Expenses Paid By a Partner Separately Treated Items Character of Items and Limitations Deduction of Losses Outside Basis Limitation - 704(d) Loss Ultimately Deductible Effect of Losses on Outside Basis Partnership Tax Return Organization and Syndication Fees Capitalized Syndication Fees Business Start-up Costs Definition Filing Requirements Due Date of Return Failure to File Failure to Furnish Copies to Partners Special Allocations - 704(b) Economic Effect Substantial Effect Year Taxable - 706(a) Limitation on Choice of Taxable Year Closing of Partnership Year Events That Terminate Partnership - 708(b) Events That Do Not Close the Year - 706(c) Transactions between Partner and Partnership Treating Partner as Stranger - 707(a) Payments by Accrual Basis Partnership to Cash Basis Partner Guaranteed Payments - 707(c) Year Taxed - 706(a) Payments Resulting in Loss Accident and Health Insurance Premiums Certain Losses Disallowed - 707(b) Two Partnerships Constructive Ownership Sales at Gain Contributions of Property Contribution vs. Sale or Exchange Disguised Sale - 707(a) Disguised Taxable Exchanges and Inside Basis of Contributed Assets Allocation of Precontribution Gain or Loss - 704(c) Liabilities Earlier Optional Application of 704(c) Character of Subsequent Gain Taint On Contribution Character of Subsequent Loss - 724(c) Contribution of Services Basis of Partner s Interest - Outside Basis Original Basis Adjustments to Basis Effect of Liabilities Deemed Distribution and Contribution Special Rule for Liabilities of Cash Basis Partnership Partner s Share of Partnership Liabilities Limited partnerships ii

4 Limits on Deduction of Partnership Losses At-Risk Rules Definition of Amounts at Risk Passive Losses Sales and Exchanges of Partnership Interests Exchanges and Transfers Like-Kind Exchanges Transfers to Controlled Corporations Hot Assets Unrealized Receivables Inventory Capital Gains - Regulations Liabilities of Partnership Basis of Partnership Assets after Transfer of Interest General Rule - 743(a) Special Basis Adjustment and 743(b) Partnership Distributions Exceptions to General Rule Basis Adjustments Partner s Interest Property Received Partnership Property and Distributions of Receivables or Inventory Proportionate Distributions Partnership Liquidations Types of Liquidating Distributions Liquidating Distributions of Money Distributions of Property in Liquidation Review Questions Review Answers Chapter 3 Limited Liability Companies Learning Objectives Introduction LLC Benefits Advantages of LLCs over C Corporation Double Tax Basis Adjustment Special Allocations Contributions Liquidation Unreasonable Compensation Non-Tax Benefits Advantages of LLCs over S Corporations Advantages of LLCs over Limited Partnerships Outside Basis and Debt Share Advantage Substantial Economic Effect Rules - 704(b) Discharge of Indebtedness Income Advantages of LLCs over General Partnerships Disadvantages Uses Professional Firms Venture Capitalists Leveraged Buyouts - LBO Joint Venture iii

5 Corporations Filing Consolidated Returns Foreign Investment Real Estate Ventures Charitable Investment Estate Planning Problem Uses Federal Tax Consequences Check-the-Box Regulations Self-Employment Tax Proposed Amendments to Limited Partner Regs Moratorium What to Do? At-Risk Rules Debt Discharge Income Passive Loss Rules Method of Accounting Audit Procedures Conversion of Partnership to LLC Conversion of S Corporation to LLC Conversion of C Corporation to LLC Local Taxes on Conversion Sales and Use Tax Real Property Taxes Real Property Transfer Taxes California Limited Liability Company Act Formation Members Permissible Businesses Professional Practice Limited Liability Partnerships Formation Fees Operating Agreement Office in California Foreign Limited Liability Companies California LLCs in Other States Reporting Requirements Secretary of State s Office Member Requirements Franchise Tax Board Requirements California Taxes and Fees Franchise Tax Entity Level Fee Dissolution Review Questions Review Answers Chapter 4 Corporations Learning Objectives Corporation Defined Effect of State Laws Corporate Characteristics Partnership Determinations - 3 Through Trust Determinations - 1 and Professional Associations Unincorporated Associations iv

6 Check-the-Box Regulations C Corporations Advantages Disadvantages PSC Corporations - 441, 448, Testing Period Personal Services Principal Activity and Substantial Performance Employee-Owner Independent Contractor Passive Loss Limitations - 469(a)(2) Qualified Personal Service Corporation Small Business Investment Company Rollover of Gain from Sale of Securities Replacement Property Postponed Amount Annual Limit on Postponed Gain Incorporation Basic Requirements Corporate Nonrecognition Property Stock Solely For Services Stock for Debt Control Property Basis Stock Basis Liabilities Section 1244 Stock Maximum Ordinary Loss Original Issuance Distributed Stock General Requirements Small Business Stock Exclusion Eligible Gain Limit Qualified Small Business Stock Active Business Test Eligible Corporation Qualified Trade or Business Pass-Through Entities Capital Gains and Investment Interest Start-Up Expenses Covered Expenses Amortization Organizational Expenses Definition Stock Issuance and Syndication Expenses Amortization Start of Business Tax Recognition of the Corporate Entity Tax Criteria Nominee and Agency Corporations Section 482 Reallocation Section 269A Corporate Income Tax Rates Tax Tables Current Rates v

7 Corporate Estimated Tax Alternative Minimum Tax Computation Exemption for Small Corporations Regular Tax Deduction - 55(c) Tax Preferences and Adjustments Preferences and Adjustments for All Taxpayers Preferences and Adjustments for Noncorporate Taxpayers and Some Corporations Preferences and Adjustments for Corporations Only Adjustments Business Untaxed Reported Profits (Pre-1990) ACE Adjustment (Post-1989) Capital Gains and Losses Net Capital Loss Carryovers S Corporation Status Asset Types Five-Step Characterization Process Netting Capital Gains (Losses) Netting Section 1231 Gains (Losses) Character of Section 1231 Gains (Losses) Year Averaging NOL Carryback and Carryover Temporary Extension of Carryback Period Loss Computation Deduction Computation Dividends Received Deduction Dividends from Domestic Corporations % Exception Charitable Contributions Timing of Deduction Limitation Carryover of Excess Contribution Collapsible Corporations (Repealed) Definition Presumption Covered Transactions Personal Holding Companies Penalty Tax Professional Corporations Named Professionals Avoidance of PHC Status Accumulated Earnings Tax Trap Imposition of Penalty Tax Computation Accumulated Earnings Credit Reasonable Accumulations Working Capital Minority Stock Redemptions Majority Stock Redemptions Tax Exempt Income Accounting Periods and Methods Accounting Periods Section 444 Election Business Purpose Tax Year Length of Accounting Period Election of Accounting Period vi

8 Changing Accounting Periods Changes without IRS Consent Accounting Methods Methods Available Changing the Accounting Method Inventories Identification Methods Specific Identification Method FIFO Method LIFO Method Valuation Methods Cost Method Lower of Cost or Market Method Multiple Corporations Controlled Group Rules Definition Consolidated Returns Definition Corporate Liquidations and Distributions The Old General Utilities Doctrine Loss Limitations Review Questions Review Answers Chapter 5 S Corporations Learning Objectives Introduction Advantages Planning Disadvantages Becoming an S Corporation S Corporation Status Number of Shareholders Individuals Only One Class of Stock Affiliated Groups and Subsidiaries Domestic Corporation Election Requirement Making the Election S Corporation Termination Revoking the Election Procedure Effective Date Ceasing to Qualify Effective Date Passive Income Effective Date S Termination Year Pro Rata Allocation Allocation Based On Normal Accounting Rules Annualization of 1120 Short Year Taxation of S Corporations S Corporation Income and Expense Separately Stated Items Nonseparately Stated Items vii

9 Interest Expense on Debt-Financed Distributions Tax Exempt Income Net Operation Losses Carryover of C Corporation NOLs Reduction of Pass-Through Items Built-In Gain Net Recognized Built-In Gain Amount of Tax Treatment of Certain Property Transfer of Assets Passive Income Gross Receipts Passive Investment Income Figuring the Tax on Excess Net Passive Income Waiver of Tax Tax Preference Items LIFO Recapture Tax Capital Gains Tax Reducing Corporate Capital Gains Figuring Corporate Taxable Income Recapture of Investment Credit Estimated Corporate Tax Payments Basis of Stock and Debts Adjustments to Basis Limitation on Loss Deductions Reasonable Compensation Related Party Rules Definition of Related Party Stock Attribution Rules Business Expenses and Interest Distributions Earnings and Profits No Earnings and Profits Appreciated Property Distributions Taxable Year Business Purpose Change of Tax Year Form 1120S Extension Late Filing Schedule K Fringe Benefits Health Insurance Premiums Reporting Requirements Medical Deduction Entity Tax Comparison Review Questions Review Answers Glossary Index viii