Question

CREATION OF CORPORATION John Payne is the sole owner of a classic car restoration business that specializes in the restoration of classic and muscle cars for individuals. It is not incorporated at this time. John has called his company the GAS MONKEE CAR RESTORATION. John believes there might be an advantage to creating a corporation for limited liability reasons. John has assets to transfer for the stock in Gas Monkee totaling approximately $250,000.00. In addition, he manages Gas Monkee's operations on a full-time basis and pays himself a salary of $80,000.00. John has a key mechanic and restoration specialist employee, Richard Rogers, that he would like to make a shareholder in the new corporation. It is John's intent to be an eighty percent (80%) owner in the corporation and Richard would be a twenty percent (20%) owner. Richard only has cash of Ten Thousand Dollars to invest and would like to substitute his mechanic skills (i.e. services) for the twenty percent ownership. Discuss in detail the relevant issues for John and Richard. Can the new corporation be formed? Would there be tax consequences for either John or Richard? Is there a way to avoid any tax consequences? Do you have any other suggestions for John and Richard from a tax perspective? You must cite in detail, using the IRAC method and Blue Book Method. Answer John and Richard in a double spaced memo, fully citing in detail the Internal Revenue Code in no more than six pages. Emphasis is placed on citing the appropriate code.

Answer 1

ANSWER:

Issues:

Whether or not the new association can be encircled?

What may be the expense ramifications for either john or Richard?

What are the ways to deal with avoid or maintain a strategic distance from charge outcomes?

Rules:

• A compelled Liability organization is a half breed sort of business element which has chosen features or highlights of a company and association.
• It has been composed in a way to benefit by the experience charge appraisal highlight of a relationship close by permitting adaptability in action and the administration.
• LLC's owners are not depleted as an alternate business substance .Instead all benefits and misfortunes are experienced the business to each person from the LLC and they will report such benefits and misfortunes on their own expense forms . .
• No limitations on the quantity of people allowed.
• People have versatility in sorting out the association the board.
• Owners are not by and by at risk for business obligations and liabilities..

Investigation :

In the given request

• The quantity of people are two for instance John payne and richard. John's offer is 80% and Richard's offer is 20% .

End:

• As there is no constraint on the quantity of people for encircling a compelled hazard organization , thusly jhon payne and richard can shape a LLC.
• As the people have versatility in sorting out the association the administration ,john can be 80% financial specialist and richard can be 20% speculator.
• The LLC isn't exhausted direct as it isn't seen as a different duty substance . Or maybe all benefits ,and misfortunes are passed to each part as indicated by his offer and the people pay charge on such bit of benefits or misfortunes on their own expense form.