Discussion
"Transfers to Controlled Corporations and Related Party Losses" Based on the lecture, address the following:
• Create a scenario where the transfer of property to a controlled corporation under Section 351 of the Internal Revenue Code (IRC) results in the taxation to the transferor. Evaluate the fairness of the taxation of the transaction to the transferor. Provide a tax-planning strategy to prevent taxation of similar transfers.
• Section 267 of the IRC disallows a deduction on losses realized on the sale of property and a deduction for accrued expenses between a corporation and a controlling shareholder. Generally Accepted Accounting Principles (GAAP) does not include this disallowance provision. Create an argument for allowing a loss on a sales transaction between a controlled corporation and shareholder when the transaction includes an independent appraisal and the loss is similar to losses incurred in arm's length transactions. Provide an example of allowing such loss to support your argument.
Assignment: Client Letter
Imagine that you are a Certified Public Accountant (CPA) with a new client who needs an opinion on the most advantageous capital structure of a new corporation. Your client formed the corporation in question to provide technology to the medical profession to facilitate compliance with the Health Insurance Portability and Accountability Act (HIPAA). Your client is very excited because of the ability to secure several significant contracts with sufficient capital.
Use the Internet and Strayer databases to research the advantages and disadvantages of debt for capital formation versus equity for capital formation of a corporation. Prepare a formal letter to the client using the six step tax research process and demonstrated in Appendix A of your textbook as a guide.
Write a one to two page letter in which you:
• Compare the tax advantages of debt versus equity capital formation of the corporation for the client.
• Recommend to the client whether he / she should use debt or equity for capital formation of the new corporation, based on your research. Provide a rationale for the response.
Your assignment must follow these formatting requirements:
• Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions.
• Include a cover page containing the title of the assignment, the student's name, the professor's name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length.
The specific course learning outcomes associated with this assignment are:
• Analyze tax issues regarding corporate formations, capital structures, income tax, non-liquidating distributions, or other corporate levies.
• Use technology and information resources to research issues in organizational tax research and planning.
• Write clearly and concisely about organizational tax research and planning using proper writing mechanics.