A taxpayer operates an accounting firm as a sole proprietorship.The taxpayer wants limited liability protection in his operationsas an accountant, as well as, liability protection from any slipand falls that would occur in his office. The only assets that thesole proprietorship has is an accountants receivable worth $50,000and an interest in a real estate partnership that is used ascollateral for a loan the taxpayer just received from Bank ofAmerica so that he could pay his current year income taxes. Thefair market value of the real estate partnership interest is$50,000 and the loan is for $20,000. The taxpayer comes to youroffice and asks you the following questions:
A. The taxpayer wants to know which type of legal entity wouldbe best suited to provide the type of limited liability protectionthe taxpayer is seeking.
B. Whether, for tax purposes, the taxpayer can contribute theassets held by the sole proprietorship to a corporation tax free?If so, explain your answer. If not, explain your answer.
C. If the taxpayer does contribute the assets to thecorporation, the taxpayer wants to know what tax impact if any,would happen if he immediately transferred 50% of the shares in thecorporation to his wife as a gift.
D. If your answer to (C) above would be different if thetaxpayerâs wife contributed services to the corporation in returnfor her 50% shareholder interest.
A taxpayer operates an accounting firm as a sole proprietorship.The taxpayer wants limited liability protection in his operationsas an accountant, as well as, liability protection from any slipand falls that would occur in his office. The only assets that thesole proprietorship has is an accountants receivable worth $50,000and an interest in a real estate partnership that is used ascollateral for a loan the taxpayer just received from Bank ofAmerica so that he could pay his current year income taxes. Thefair market value of the real estate partnership interest is$50,000 and the loan is for $20,000. The taxpayer comes to youroffice and asks you the following questions:
A. The taxpayer wants to know which type of legal entity wouldbe best suited to provide the type of limited liability protectionthe taxpayer is seeking.
B. Whether, for tax purposes, the taxpayer can contribute theassets held by the sole proprietorship to a corporation tax free?If so, explain your answer. If not, explain your answer.
C. If the taxpayer does contribute the assets to thecorporation, the taxpayer wants to know what tax impact if any,would happen if he immediately transferred 50% of the shares in thecorporation to his wife as a gift.
D. If your answer to (C) above would be different if thetaxpayerâs wife contributed services to the corporation in returnfor her 50% shareholder interest.
