Bob’s Used Cars Analysis1Final ProjectTax 650Cindi Earls
Bob’s Used Cars Analysis2MEMOTo: Bob JonesFrom: Cindi EarlsDate:May 12, 2019Subject: Business Analysis: Used Car DealershipBob, a 60-year-old retired single man who is opening a used car dealership inPensacola, Florida, has hired CE 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 transfer 40% interest in the business to Mandy, his daughter. I.MemorandumA.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 statesthat 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 the
Bob’s Used Cars Analysis3benefits 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. (2018 FL Statutes 605-0201) Thearticle must include the LLC’s name, address, and signatures of the LLC’s registeredagent and LLC members(managers). It must also include the effective date ifdifferent from the filing date. The filing fee is $125.00, and the articles can be filedmy mail or online. After successfully forming the LLC, Bob will need apply for anEmployer ID number (EIN) which is used to identify his business. One of the benefits of an LLC is the liability protection that is available for themembers. Limited liability protection gives owners or shareholders protection overhis or her personal assets. However, there are many conditions where the courts will“pierce the corporate veil” or go after a member’s personal asset to satisfy anobligation. Some examples where the limited liability protection can be disregardedis:1.There isn’t a formal/ legal separation between the owner and the entity. For instance,if the owner pays personal bills from the business checking account or ignores thelegal formalities that a corporation or LLC must follow (for example, by makingimportant corporate or LLC decisions without recording them in minutes of ameeting), a court could decide that the owner isn't entitled to the limited liabilitythat the corporate business structure would ordinarily provide.