Final Project - Cearls.docx - Bobu2019s Used Cars Analysis...

Bob’s Used Cars Analysis 1
Final Project
Tax 650
Cindi Earls

Bob’s Used Cars Analysis 2
MEMO
To: Bob Jones
From: Cindi Earls
Date: May 12, 2019
Subject: Business Analysis: Used Car Dealership
Bob, a 60-year-old retired single man who is opening a used car dealership in
Pensacola, Florida, has hired CE Consulting, LLC to provide detailed analysis and
recommendations on which business entity would best fit his business needs as well
as the tax implications.
Bob currently has 690k in his 401k as well as land that he bought in 1966 for $450k
that is now worth 9 million dollars, in which he will use as his start-up capital. He
will also transfer 40% interest in the business to Mandy, his daughter.
I. Memorandum
A. Business Entity
After thorough research, I recommend that Bob sets up his used car dealership as an
LLC and elects to be taxed as a partnership. Treasury regulation § 301-7701-3 states
that depending on the number of members and the elections that are made, a Limited
Liability Company (LLC) can be treated as a corporation, partnership or sole
proprietorship for federal tax purposes. An LLC provides an entrepreneur with the

Bob’s Used Cars Analysis 3
benefits of a partnership and a corporation. An LLC is a pass- through entity, just like
a partnership and just like a corporation, an LLC provides liability protections to the
members. To form an LLC in the state of Florida, Bob will have to file an Articles of
Organization with the Division of Corporations. (2018 FL Statutes 605-0201) The
article must include the LLC’s name, address, and signatures of the LLC’s registered
agent and LLC members(managers). It must also include the effective date if
different from the filing 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 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 the
members. Limited liability protection gives owners or shareholders protection over
his 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 an
obligation. Some examples where the limited liability protection can be disregarded
is:
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 the
legal formalities that a corporation or LLC must follow (for example, by making
important corporate or LLC decisions without recording them in minutes of a
meeting), a court could decide that the owner isn't entitled to the limited liability
that the corporate business structure would ordinarily provide.