You are working as an accountant at a mid-size CPA firm



You are working as
an accountant at a mid-size CPA firm. One of your clients is Bob Jones. Bob’s
personal information is as follows: DOB: October 10, 1952 SSN: 444-00-4444
Marital Status: Single Home Address: 5100 Lakeshore Drive, Pensacola, FL 32502
Bob has a very successful used car business located at 210 Ocean View Drive in
Pensacola, Florida. Last year, you filed a Schedule C for Bob that had
$1,200,000 in taxable income. The business will have an income growth rate of
10% per year over the next several years. Bob’s personal wealth, including
investments in land, stocks, and bonds, is about $14,000,000. Last year, he
reported interest income of $20,000 and dividend income of $6,000. The
$14,000,000 includes land worth $9,000,000 that Bob bought in 1966 for
$450,000. The stocks and bonds have a tax basis of $1,200,000 and they are
currently worth $5,000,000. All of the investments have been owned for more
than a year. In addition to his investments, Bob paid $140,000 for his home in
1972 and it is now worth $600,000. The used car business is currently valued at
$53,000,000 including the land and building, which are worth $41,000,000. Bob’s
tax basis in the land and building is $2,000,000 and $400,000, respectively.
The inventory is worth $12,000,000, with a cost basis of $5,000,000; the
remaining assets, which include office furniture and equipment, make up the
remainder of the business’s total value. The office furniture and equipment are
fully depreciated. Bob wants your professional advice regarding whether he
should continue to operate as a sole proprietor or convert the business to a
partnership, an S corporation, or a C corporation. Based on one of the business
entities selected, Bob wants to include Mandy—his daughter—in the business as
an owner and manager with a possibility of 40% interest. One of his concerns is
what would happen to his business after he passes away. Mandy’s personal tax
information is as follows: Mandy Jones DOB: June 30, 1990 SSN: 999-99-9999
Marital Status: Single Home Address: 5990 Langley Road, Pensacola, FL 35203


A. Use logical reasoning based on your tax
research to explain why the client should choose your recommended business
entity. Consider referencing appropriate tax code and regulations.

Defend your business entity recommendation by describing the accounting method.
Consider the advantages and disadvantages of the business entity based on the

1. Cash basis vs. accrual

2. The cost to
prep the returns

3. The tax

4. The limited
liability protection

5. Employee

C. Interpret the tax laws pertaining to the
type of business recommended and justify your recommendation using details
consistent with tax law, code, and regulations.


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