Choice of Entity – Key Issues: S Corp, C Corp, Partnership, LLC and Sole Proprietorship

Author/Moderator: Bill Harden, CPA, ChFC, Ph.D.

Publisher: AICPA

Availability: 03/25/2010

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Description

Choice of entity issues are relevant throughout the life of a business. When starting a new business, a crucial first decision is choosing the correct form of entity to accomplish the company’s goals. Likewise, it is equally important to know when an entity change is needed as well as the tax consequences of the sale or liquidation of the various forms of doing business. This course targets the ever-increasing tax advantages and disadvantages of general and limited partnerships, C and S Corporations, LLCs and LLPs, as well as individual proprietorships. It will help you hone in on the key issues surrounding the myriad of factors that drive the optimal form of organization for a business. The course also includes plenty of case studies from real life client situations.

Make the best decision when forming a tax entity
Know precisely when an entity change is needed to achieve business or tax advantages
Avoid getting snared by the complex tax law provisions on the selection, organization, restructuring and liquidation of business forms
Match business and tax strategies to the appropriate business form

Prerequisite: Experience in business taxation

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Chapter 0 - Overview of Entity Choice
- Introduction
Chapter 1 - General Considerations
- Learning Objectives
- Entities
  - A Regular Corporation (also Known as a C Corporation)
  - An S Corporation
  - Professional-service Corporation (PC)
  - General Partnership
  - Limited Partnership
  - Limited Liability Company (LLC)
  - Limited Liability Partnerships (LLPs)
  - Disregarded Entities
- Use of an Entity
- Case Studies
- Case Study 1-1: Creditor-Protection Strategies
  - Facts
  - Discussion
- Case Study 1-2: Protecting UTMA Assets from a Minor Child
  - Facts
  - Discussion
- Case Study 1-3: Changing the Situs of Real Property
  - Facts
  - Discussion
- Case Study 1-4: Minimizing Risk of Dealer Status
  - Facts
  - Discussion
- Case Study 1-5: Selling a Principal Residence to a Controlled Entity
  - Facts
  - Discussion
- Case Study 1-6: Valuation Discounts Using Partnerships
  - Facts
  - Discussion
- Questions
Chapter 2 - Entity Formation
- Overview
- How Difficult Is It to Form an Entity?
- Tax Consequences of Formation
  - General Discussion
  - Transfers to a Corporation
- Transfers to a Partnership
- S Elections
- Case Study 2-1: The One-Member Entity
  - Facts
  - Discussion

Case Study 2-2: Control Issues with Transfers to Corporations
- Facts
- Discussion
Case Study 2-3: Control Problems for Later Transfers
- Facts
- Discussion
Case Study 2-4: Contributing Property with Liabilities in Excess of Basis
- Facts
- Discussion
Case Study 2-5: Liability Transfers with Tax Avoidance
- Facts
- Discussion
Case Study 2-6: When Money Has Been Borrowed Shortly before Transfer to an Entity
- Facts
- Discussion
Questions

Chapter 3 - Operations
- Salary and Self-Employment Tax Issues
- Losses and Use of Debt Basis
  - Partner’s Basis
  - S Shareholder’s Basis
  - At-Risk Rules
  - Passive Loss Rules
- Allocations in Flow-through Entities
  - Overview
  - S Corporation Allocations
  - Partnership and LLC Allocations
- Retirement Plans
- Fringe Benefits
- Case Study 3-1: Income and Cash Flow Priority
  - Facts
  - Discussion
- Case Study 3-2: Using Special Allocations
  - Facts
  - Discussion
- Case Study 3-3: Allocations with Respect to Precontribution Gain or Loss
  - Facts
  - Discussion
- Case Study 3-4: Payroll Tax Comparison
  - Facts
  - Discussion
- Case Study 3-5: Rewarding Service Providers for Future Profits of the Entity
  - Facts
  - Discussion
- Questions
Chapter 4 - Distributions
- Overview
- C Corporation Distributions
  - Double Taxation
  - Dividends
  - Avoiding Two Levels of Tax
  - Other C Corporation Issues
- Distributions by S Corporations
  - Overview
  - Distributions When the S Corporation Has Earnings and Profits
  - Distributions from an S Corporation without Earnings and Profits
- The Tax Effects of Distributions on the Corporation
- Partnership Distributions
  - Overview
  - Disproportionate Distributions of Section 751 Assets
  - Disguised Sale Provisions
  - Early Trigger of Section 704(c) Gain
  - Marketable Securities as Cash
- Case Study 4-1: Avoiding Two Levels of Tax for Distributions
  - Facts
  - Discussion
- Case Study 4-2: Avoiding Gain Recognition from Property Distributions
  - Facts
  - Discussion
- Case Study 4-3: Disproportionate Distribution-Partnership Complexity
  - Facts
  - Discussion
- Case Study 4-4: Distributions of Marketable Securities
  - Facts
  - Discussion
- Questions
Chapter 5 - Sales and Reorganizations
- Overview
- Sales of Business Interests
  - Sale of Stock or Assets
  - Sale of Partnership Interest
- Using Corporations in Nontaxable Acquisitions
  - Operating Rules of Corporate Reorganizations
  - Treatment of Target Shareholders (§§354, 356, and 358)
  - Treatment of Target Corporation §§357, 361, and 381
  - Treatment of Acquiring Corporation – §§362, 381, and 1032
  - Judicial Doctrines Applicable to Reorganizations
- Nontaxable Divisions of a Corporation
- Mergers and Divisions of Partnerships
- Conversion of a Corporation to a Partnership
  - Overview
  - Liquidation of Corporation, Followed by Contribution of Assets (Alternative 1)
  - Transfer of Stock Followed by Liquidation of Corporation (Alternative 2)
  - Asset Transfer by the Corporation, Followed by Distribution of the Interest (Alternative 3)
  - Asset Transfer Followed by Continuation of Corporation (Alternative 4)
- Restructurings Involving Disregarded Entities
- Case Study 5-1: Acquisition of Business Assets
  - Facts
  - Discussion
- Case Study 5-2: Acquisition of Interests in a Business
  - Facts
  - Discussion
- Case Study 5-3: Division of a Business
  - Facts
  - Discussion
- Case Study 5-4: Conversion of a Corporation to an LLC
  - Facts
  - Discussion
- Case Study 5-5: Acquisition of Corporate Stock and Section 338
  - Facts
  - Discussion
- Questions
Chapter 6 - Estate Planning Issues
- Overview
- The Unified Transfer Tax System
  - Unified Tax Base and Tax Rates
  - Annual Exclusion for Gift Transfers
- Lifetime Gifts of Property
  - Basic Advantage
  - Giving Stock in a Closely Held Business
  - Gifts to Minors or in Trust
  - Qualifying Transfers in Trust for the Annual Gift Exclusion
- Charitable Remainder Trusts and Business Interests
  - Description
  - Advantages of Charitable Remainder Trusts
- Succession Planning in a Closely Held Business
  - Overview
  - Buy-Sell Agreements
- Reducing the Estate Valuation of the Business Interests
  - Lack of Marketability
  - Minority Discount and Control Premium
- Family S Corporation Issues
- Family Partnership (or LLC) Issues
  - Family Partnerships and §704(e)
  - Section 754 Basis Adjustments
- Corporate Redemptions to Pay Death Taxes
  - Why a Recapitalization?
- Case Study 6-1: Charitable Remainder Trust
  - Facts
  - Discussion
- Case Study 6-2: Basis Adjustments after Death
  - Facts
  - Discussion
- Case Study 6-3: Using Family Limited Partnerships and LLCs for Valuation Discounts
  - Facts
  - Discussion
- Case Study 6-4: Corporate Stock Redemption from an Estate
  - Facts
  - Discussion
- Questions
Chapter 7 - Latest Developments

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NASBA Field of Study: Taxes

Level: Intermediate

Recommended CPE Credit: 10

Important Information on Your CPE Credit

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