Problem 1. Two brothers would like to form a small retail business. They would like your advice in structuring the business. They have heard that there are various options such as a corporation, a partnership or a sub-chapter S Corporation and would like to know the advantages and disadvantages of each form. Include both tax and non-tax consequences. They plan on contributing the following:
Joe: $100,000 in cash
Jim: Equipment with a fair market value of $100,000 and a basis to him of $80,000.
They anticipate losses of $5000-$10000 in the first two years, but then hope that they will generate a profit.
Include in your answer the tax consequences in forming each type of business, the basis they would have in their stock or partnership interest, and the basis the business would have in the assets.
Problem 2. These same brothers would also like to know how they can take out distributions while minimizing taxes once the business is up and running.
Problem 3. Finally they would like to know what the consequences would be should they wish to dissolve the business or terminate their interest in it. Discuss each form.