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Corporate & Partnership Tax OutlineI.OVERVIEW OF BUISNESS ENTERPRISEa.Categories of Businessesi.Partnerships1.Partnership = a business owned by two or more persons as co-ownersa.Includes a syndicate, group, pool, joint venture, or other unincorporated organization through or by means of which any business, financial operation, or venture is carried on, and which is not, within the meaning of this title, a corporation or a trust or estate. [§ 706(a)]. 2.Subchapter K3.General Partnershipsa.All partners have unlimited liability for the businesses debt4.Limited Partnershipsa.The limited partners are protected from personal liabilityb.The General Partner has unlimited liability for the businesses debt5.Limited liability Partnershipsa.All members are protected from liability for the businesses debt6.Limited Liability Companya.Unincorporated entity in which the owners, called “members” have limited liability ii.C Corporations1.Subchapter C2.Large Businesses, publically traded corporations3.Has a Double TaxRegimeiii.S Corporations1.Subchapter S2.Smaller corporations; do very little businessb.Conceptual Taxation Modelsi.Aggregate Concept1.A partnership would not be recognized as an independent taxable entity. Each of the partnership owners holds a direct undivided interest in the assets and operations of theenterprise2.The partnerships income and deductions would be treated as directly earned or incurred by the partners3.Distributions would be nontaxable because the partners would be viewed as receivingincome, which was previously taxed. ii.Entity Concept1.Would resemble the treatment of corporations in Subchapter C.2.A business organization is viewed as an entity that is separate and distinct from its owners. 3.Entity is subject to tax on its taxable income, and transactions between the owners and the entity are taxable events (double tax).a.Distributions of corporate profits are taxable to the Shareholders. iii.Hybrid Concept1.Treating an organization as a separate entity for some purposes (determining income, filing of tax returns), and as an aggregate for other purposes (passing through income and expenses to owners and by treating a sale of an interest in the organization as a sale of the owner’s proportionate share of each asset). 1
II.Entity Classificationa.Choicesi.Sole Proprietorshipii.Corporation1.Generally, shareholders and not personally liable for Corps debts2.Double tax regimea.Tax imposed on both the Corporation and Shareholderiii.Partnership1.General Partnership2.Limited Partnership3.Limited Liability Partnership4.Limited Liability Company a.Limit liability and use single tax regimeiv.Differences1.Liabilitya.Corps generally not personally liableb.Partnerships some may be personally liable2.Federal income taxa.Corps Double tax regimei.Section 11ii.Individual rates are higher than capital gain ratesb.Partnerships Single tax regimev.Ways to reduce Corporate level tax1.Eliminate corporate income by giving salaries2.