Discussion Question 1

Your friend, John and Kate, are starting a business together and have asked your opinion
regarding whether they should form a partnership, a corporation, or some other type of entity.
Prepare a bullet list of questions you would ask in helping them decide which type of entity is
more appropriate.

Questions I would ask:

What type of business are you going to operate?

What amount and type of income (loss) do you expect from the business?

What is the amount and type of income (loss) that you expect from other sources?

Do you expect to have losses in the early years of the business?

Will you withdraw profits from the business or leave them in the business so it can grow?

In what state(s) will the business be formed?

When are C corporations required to make estimated tax payments? Discuss how these payments
are scheduled? What happens if the payments do not cover the actual tax liability?

C corporations required to make estimated tax payments quarterly, and according to the IRS (2016, p.1),
the payments are set up as installments: The installments generally are due by the 15th day of the 4th,
6th, 9th, and 12th months of the tax year. If any due date falls on
a Saturday, Sunday, or legal holiday, the installment is due on the next regular business day (p. 1). If
there is an underpayment of the estimated tax, the corporation may face an underpayment penalty for the
period the underpayment occurred.

References

Hoffman, W. H. (20160429). South-Western Federal Taxation 2017: Comprehensive, 40th Edition

[VitalSource Bookshelf version]. Retrieved from:
https://bookshelf.vitalsource.com/books/9781337342070

Internal Revenue Service (2016) 2017 Instructions for Form 1120-W.

Retrieved from: https://www.irs.gov/pub/irs-pdf/i1120w.pdf
Discussion Question 2

There are times in which corporations with subsidiaries will be able to file a consolidated return.
In doing so, they can eliminate any intercompany profits and losses on the principle that its tax
liability should be based on transactions with outsiders. Taking this concept a step further, what
are the main advantages and disadvantages of filing consolidated returns? Provide some
examples of companies who file consolidated returns.

Hoffman (2016, p. 17-26) list the advantages and disadvantages of filing consolidated returns below:

The advantages of a consolidated return are summarized below:

Losses of one group member can be used to shelter the income of other members.
Taxation of inter-company dividends may be eliminated.
Recognition of income from certain inter-company transactions can be deferred.
Deductions may be optimized due to percentage limitations being modified because of the consolidation
process.

The disadvantages of filing a consolidated return are as follows:

An election is binding on subsequent years and can be avoided only if the makeup of the affiliated group
changes or the IRS consents to the revocation of consolidated return status.
Recognition of losses from certain inter-company transactions is deferred.
The requirement that all group members use the parents tax year could create short tax years for the
subsidiaries. This could cause a bunching of income and use up a full year for carryover purposes.
Additional administrative compliance costs may be incurred as the consolidated tax return provisions are
extensive and complex.

Bradford (2012, image), shows was the centered 10 companies own (parent company to) in the following
image):
References

Bradford H. (2012, April 27). These 10 Companies Control Enormous Number of Consumer Brands
[GRAPHIC]. Retrieved from: http://www.huffingtonpost.com/2012/04/27/consumer-brands-owned-ten-
companies-graphic_n_1458812.html

Hoffman, W. H. (20160429). South-Western Federal Taxation 2017: Comprehensive, 40th

Edition [VitalSource Bookshelf version].
Retrieved from: https://bookshelf.vitalsource.com/books/9781337342070