Projecti1 focuses on corporate formations and investor contributions. In this project, you will be evaluating the different types of investor contributions and the treatment of these contributions. The following resources explain specific concepts of tax law that you will need to understand in order to assess the facts of the project and make recommendations to the client.
– Treatment of Boot
– Assumption of Liabilities
– Special issues of Incorporation
– Debt vs Equity
Court case List:
-Peracchi v. Commissioner – This court case provides a substantive example of how encumbered property (with liabilities in excess of shareholder basis) may be contributed without the recognition of IRC 357(c) gain. As you read the case, is this the outcome you would have expected? (45 min)
– Fin Hay Realty Co. v. United States – This court case illustrates how investments made to a closely-held corporation may be reclassified by the Internal Revenue Service (IRS) from debt to equity. (35 min)
– Hempt Brothers Inc. v. United States – This case highlights the interplay IRC 351 and assignment of income doctrine under special issues of incorporation. (40 min)
– Commissioner of Internal Revenue v. Fink et al. – In this case, a majority shareholder, who caused the corporation to retire some of his shares to improve the corporation’s balance sheet, attempted (unsuccessfully) to deduct the retirement of shares as an “ordinary” loss which would have been favorable to him as an individual.
Over the last few years in our federal tax system, we’ve seen the regular C Corporate income tax rate decrease from a graduated rate of up to 35%, down to a “flat rate” of 21%. Some tax professionals have speculated that such a dramatic decrease in tax rate will lead to more business entities being organized as C Corporations, notwithstanding the existence of the so-called “double tax” system.
As folks ride the wave of a markedly lower flat corporate tax rate, how might you advise a client who is concerned that the current administration is leading a successful charge to rollback this decrease?
Additionally, what possible protective strategies should be considered if a C Corporation organized during a flat 21% tax rate suddenly finds itself subject to a 30% (or higher) rate?
Memo, not to exceed 4 pages, to your manager that documents findings and recommendations to the client and to the corporation. Attach your Excel workbook as an exhibit at the end of your memo. The memo must be single-spaced, 12-point, Times New Roman font.