“Transfers to Controlled Corporations” Please respond to 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.
From the e-Activity, examine the differences in the treatment of nonmonetary transactions in corporate formations under GAAP versus under Section 351 of the IRC. Suggest the main possible reason for these differences.
“Related Party Losses” Please respond to the following:
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. 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 to support your argument.
Suppose clients request that their tax return preparation include the loss on the sales transaction identified between the controlling shareholder and corporation, as described in Part 1 of this discussion. Analyze the potential impact and required disclosures resulting from the inclusion on the financial statements and the tax return of the corporation. Examine the implications of the uncertain tax position in this situation on the requirements of Circular 230 and the Statements on Tax Standards (SSTS).
Assignment 1: 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 (6) step tax research process in Chapter 1 and demonstrated in Appendix A of your textbook as a guide.
Write a one to two 600- 650 page letter in which you:
1. Compare the tax advantages of debt versus equity capital formation of the corporation for the client.
2. 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.
3. Use the six (6) step tax research process, Provided below to record your research for communications to the client.