Bob business is a partnership Bob has a very successful used car


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hello, I need help in making some adjustment to the question attached 1-2 paragraph will be good thanks paper review.docx Bob business is a partnership 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. 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. I need help correcting this question below thanks B. Justify the percentage of ownership the client’s daughter should have in the business based on Partnership business entity. Consider the tax law in reference to the recommendation and how the decision will affect the daughter’s tax return. My Respond According to §722, the basis of an interest in partnership acquired by a contribution of property, including money, to the partnership shall be the amount of such money and the adjusted basis of such property to the contributing partner at the time of the contribution partner at the time of the contribution increased by the amount (if any) of gain recognized in §721(b) to the contributing partner at such time. However, the daughter doesn’t contribute capital as prescribed under this section but her share is termed as gift capital received from the father and is therefore justifiable under the terms stated in section 704. According to §704, in the case of gift of capital interest to a family member, the basis for such interest attributed to the donated capital must not be proportionately greater than the donor’s distributive share attributed to the donor’s capital. Based on this fact, the daughter can have the share of 40% is very appropriate. Looking at the illustration given, whereby the father is receiving $180,000 while the daughter is receiving $70,000 which is 40% of the total income received in the business, her share is not greater than the father’s share. Under tax rules, the daughter would have to report her share of income as her gross income which is liable for taxation and this is the percentage of income that had been reported in the business’ taxable income. Professor feedback-Another good try! You used the 40% suggested in the assignment Prompt. That’s what Bob thinks that he wants but I’m wondering whether it might make sense to consider other percentages or maybe a stair-stepping approach to get to 40%. Also, I have to wonder where Mandy will get the cash to pay for 40% of the business or whether Bob will cover the gift tax. We’re talking some pretty significant money here ($53 million business value * 40% is more than $20 million

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