Taxation of Business Entities Law 537 University of

Taxation of Business Entities Law 537 University of Washington School of Law Instructor: Dwight Drake Spring 2009 Corporate & Partnership Tax Instructor: Dwight Drake

Contact Info – Office Hours Email: djdrake@u. washington. edu Phones: 206. 616. 6385, 425. 281. 1493, 425. 222. 5988, 360. 778. 1862 URL: http: //faculty. washington. edu/djdrake/Corporate and. Partnership. Taxation. shtml Office Hours: Room 416 - Wednesday 1: 30 p. m. to 2: 20 p. m. - Whenever else you can catch me! Corporate & Partnership Tax Instructor: Dwight Drake

Course Objectives • Substantive knowledge base – Corporate Taxation • Develop, hone tax learning skills • Internalize the “Concepts” • Strengthen analytical, problem-solving skills • Introduce the planning process • Your role – design, not default Corporate & Partnership Tax Instructor: Dwight Drake

Some Tips… • First: Beat Up Code. Learn to talk Code • Find the “Concept” of each section. • Then Text and Regs. to fill gaps for you. • First work Problems hard on your own. • Download PP Slides in advance of class – reconcile with your own answers. This is key learning moment. • Think and mentally prepare your pitch. • Track class discussion. • Write personal summary following class. • Get ahead – Stay ahead! Corporate & Partnership Tax Instructor: Dwight Drake

Grade Criteria • 100% final • No tricks or gimmicks • Focus on problems and class discussion • Short essay based on fact patterns • Can use any none living thing • Key is to have you reminder aids well organized • Premium on knowing scope of materials well • Completely “Ace-Able” by all! Corporate & Partnership Tax Instructor: Dwight Drake

Federal Tax Sources Pers. Income Corp. Income Social Insurance Excise Taxes Estate & Gift Misc. Total Revenue 2001 2002 2003 2004 2005 994. 3 151. 1 694. 0 66. 2 28. 4 57. 2 858. 3 148. 0 700. 8 67. 0 26. 5 52. 5 793. 7 131. 8 713. 0 67. 5 22. 0 54. 4 809. 0 189. 4 733. 4 69. 9 24. 8 53. 9 927. 2 1, 043. 9 1, 163. 5 278. 4 353. 9 370. 2 794. 1 837. 8 869. 6 73. 1 74. 0 65. 1 24. 8 27. 9 26. 0 56. 4 74. 0 65. 1 1, 853. 2 1, 782. 3 1, 991. 2 2006 2007 1, 880. 3 2, 153. 9 2, 407. 3 2, 567. 7 All in billions Corporate LLM Corporate & Partnership Tax Instructor: Dwight Drake

America’s Privately-Owned Businesses • 25 Million • 99 % of all employers • 75% of all new jobs • 53% of private workforce • 70% of all first jobs • 50% of all sales • Largest client base for professionals • Badly under-serviced by Bar Corporate & Partnership Tax Instructor: Dwight Drake

The Lawyer’s Role as an Advisor to Business Owners, Professionals and Entrepreneurs Flash Presentation (20 Min. approx) by Dwight Drake Law School Website-Career-Students-Job Resources-Career Tools-Flash Note: It takes a few minutes to load Corporate LLM Corporate & Partnership Tax Instructor: Dwight Drake

Types of Privately-Owned Businesses Type A: The Equal Slaves Type B: The Big Fish Type C: The Golfers Type D: The Hybrid Type E: The Family Affair Type F: The Professionals Type H: The Emerging Public Company Corporate & Partnership Tax Instructor: Dwight Drake

Business Entity Forms • C Corporations - Subchapter C (§§ 301 -385) • S Corporations - Subchapter S (§§ 1361 -1379) • Unincorporated Single Owner - Individual Proprietorship • General Partnerships – Subchapter K (§§ 701 -777) • Limited Liability Companies - Subchapter K (§§ 701 -777) Corporate & Partnership Tax Instructor: Dwight Drake

US Businesses Projected Revenues 2007 Corporations $ 21. 58 Trillion (84. 2%) Sole Proprietorships $ 1. 23 Trillion (4. 8%) Partnerships $ 1. 35 Trillion (5. 3%) Limited Liab. Companies $ 1. 45 Trillion (5. 7%) Total Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning. com $ 25. 61 Trillion Corporate LLM Corporate & Partnership Tax Instructor: Dwight Drake

Duncan and Sandy Smith Plan Income Charitable Deduction Remainder Alma Mater Assets Charitable Remainder Trust Compensation Contributions Qualified Retirement Plan Distributions QSSS Corp (One) Copyright 2005 Dwight Drake. All Rights Reserved. Business Planning: Closely Held Enterprises www. drake-business-planning. com Remainder Duncan and Sandy Living Trust C Corporation Distributions Term Use Son Trust Home Personal Residence Trust Assets Income Family L. L. C. Units (Growth) Assets Family L. L. C. (New) Holding S Corp (Parent) Distributions QSSS Corp (Two) Daughter Trust Cash Dynasty Insurance Trust Corporate LLM Corporate & Partnership Tax Instructor: Dwight Drake Daughter Trust GC Trust – 1 GC Trust – 2 GC Trust – 3 Units GC Trust – 4 Income, support GC Trust – 5 GC Trust – 6

The Big Overriding Traps • Sham Transaction • Business Purpose • Step-Transaction • Substance Over Form • Section 482 Corporate LLM Corporate & Partnership Tax Instructor: Dwight Drake

Trap One: Sham Transaction Business Entity Service Fees Phony Off Shore Operation Cash Transfers Common Owner Note: No Business Purpose Corporate LLM Corporate & Partnership Tax Instructor: Dwight Drake

Trap Two: Form Over Substance C Corp 500 k loan - Deductible interest - No repayment plan 10 k for stock Shareholder What’s wrong here? Corporate LLM Corporate & Partnership Tax Instructor: Dwight Drake

Trap Three: Step Transaction Business Entity Cash proceeds sale of asset Asset Gift Child of owner Owner Cash Gift Note: No Business Purpose Corporate LLM Corporate & Partnership Tax Instructor: Dwight Drake

Trap Four: Section 482 Bargain sale C Corp A C Corp B Imputed Income Imputed Dividend Imputed Contribution Common owners Corporate LLM Corporate & Partnership Tax Instructor: Dwight Drake

C Corp Tax Impact Income or Loss C Corp Shareholder A Corporate Entity Tax Shareholder B Corporate & Partnership Tax Instructor: Dwight Drake Tax On Dividends As Paid

Pass Thru Entity Tax Impact Income or Loss Pass Thru Entity Partnership, LLC, S Corp Owner A Owner B Corporate & Partnership Tax Instructor: Dwight Drake No Entity Tax On Earnings As Recognized

Our Focus Issues – The Forest • Taxation of Entity Operations Profits and Losses • Entity Formation Tax Issues • Taxation of Non-Liquidating Distributions by Entity – Dividends and Partnership Distributions and Allocations • Taxation of Transactions Between the Entity and Its Owners • Taxation of Entity Liquidations • Taxation of Taxable Transfers of the Entity or its Ownership Interests • Brief Introduction to Corporate Tax Free Reorganizations Corporate & Partnership Tax Instructor: Dwight Drake