Taxation

Buddy and Bobby form a business entity with each contributing the following DECISION MAKING property Four months later, the land is sold for $165,000 because of unexpected zoning problems. The proceeds are to be applied toward the purchase of another parcel of land to be used for real estate development.

Determine the tax consequences to the entity and to the owners upon formation and the later sale of the land if the entity is: a. A partnership. b. An S corporation. c. A C corporation.

d. Describe how the parties could structure the transaction so as to defer any recognized tax gain.

A business entity’s taxable income before the cost of certain fringe benefits paid to owners and other employees is $400,000. The amounts paid for these fringe benefits are reported as follows. The business entity is equally owned by four owners.

a. Calculate the taxable income of the business entity if the entity is a partnership, a C corporation, or an S corporation.

b. Determine the effect on the owners for each of the three business forms.

Solution:

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