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5/31/2017Business AnalysisUsed Car DealershipJane DoeABC CONSULTING, LLC
`MEMOTo: Bob JonesFrom: Jane DoeCc:John Doe Date:May 31, 2017Subject: Business Analysis: Used Car DealershipBob, a 60-year-old retired man who is opening a used car dealership in Pensacola,Florida, has hired JSJS Consulting, LLC to provide detailed analysis andrecommendations on which business entity would best fit his business needs as wellas the tax implications. Bob currently has 690k in his 401k as well as land that he bought in 1966 for $450kthat is now worth 9 million dollars, in which he will use as his start-up capital. Hewill also give transfer 40% interest in the business to Mandy, his daughter. I. BUSINESS & TAX ANALYSISA.Business EntityAfter thorough research, I recommend that Bob sets up his used car dealership as anLLC and elects to be taxed as a partnership. Treasury regulation § 301-7701-3 statesABC Consulting, LLC
`that depending on the number of members and the elections that are made, a LimitedLiability Company (LLC) can be treated as a corporation, partnership or soleproprietorship for federal tax purposes. An LLC provides an entrepreneur with thebenefits of a partnership and a corporation. An LLC is a pass- through entity, just likea partnership and just like a corporation, an LLC provides liability protections to themembers. To form an LLC in the state of Florida, Bob will have to file an Articles ofOrganization with the Division of Corporations. The article must include the LLC’sname, address, and signatures of the LLC’s registered agent and LLCmembers(managers). It must also include the effective date if different from thefiling date. The filing fee is $125.00 and the articles can be filed my mail or online.After successfully forming the LLC, Bob will need apply for an Employer IDnumber (EIN) which is used to identify his business. B.Accrual Method Vs Cash MethodIn section 446 it reads that taxable income should be computed under the method ofaccounting that the taxpayer uses to calculesate income throughout the year and themethods of accounting that are permissible. The permissible accounting methods arethe accrual methods, cash receipts and disbursement method, and any other methodthat is permitted under § 446. The purpose of the accrual method of accounting is to match income and expenses inthe correct year. There two test that help determine when income can be reportedunder the accrual method. The all events test, where an accrual method taxpayerreports an income when “all events” have occurred that gives the taxpayer the right
`to receive the item of income and the amount can be determined with reasonableaccuracy (CFR 1.446-1). Economic performance test, this test is satisfied whenservices or property is rendered by the other party (Rupert et al…2016). The allevents and economic performance test also determines when certain items can bededucted under the accrual method of accounting. Section 461(h) states that allevents test must be satisfied in order to deduct a tax liability. There are threeprincipals in which all events occur in order to deduct liabilities which are: 1. all