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"AC553 - Week 6 You Decide (125 points) You Decide Assignment Title:
"AC553 - Week 6 You Decide (125 points)You Decide Assignment Title: C Corporations ConcludedScenario SummaryYou represent a wealthy client who has decided to purchase a manufacturing company, Smithon Widgets (a C corporation), that has been very profitable. This client, Mr. Jones, is the majority shareholder of another C corporation. Johnson Services that has incurred significant losses. Mr. Jones comes to you with some questions and suggested outcomes.RoleAfter reviewing Mr. Jones’ questions and recommendations, it will be your turn as a tax professional to decide on the best course of action from a tax perspective on the issues presented. Prepare a three page memo (at least 300 words per page) to Mr. Jones addressing the potential sale or merger of these two companies.ActivityGiven the scenario, your role and the information provided by the key player involved, it is time for you to make a decision.If you are finished reviewing this scenario, close this window and return to this week's You Decide item, in your course window, to complete the activity for this scenario.You can return and review this scenario again at any time.Prepare a three page memo (at least 300 words per page) to Mr. Jones addressing the potential sale or merger of these two companies. Address his issues point by point: Outright purchase of Smithon stock Should Mr. Jones purchase the stock of Smith outright, leaving Smithon intact? What about issuing debt in his Johnson Services company to pay for the Smith company – would that raise debt to equity issues? Should Mr. Jones convert Smithon to an S corporation and change the fiscal year end to a calendar year end? What potential income tax ramifications exist for Mr. Jones personally if he purchases the stock of Smithon and converts it to an S corporation? Should Mr. Jones merge Johnson Services with Smithon? What type of merger or acquisition would be best (i.e., A type, etc.)?Merger or acquisition of Smithon by Johnson Services If the two companies are merged, could Smithon use Johnson Service’s net operating loss carryforwards? Any limitations on their use? Should Mr. Jones use Johnson Services’ stock to acquire Smithon? Why or why not? Would a merger or acquisition affect Mr. Jones’ ability to change Smithon’s fiscal year end to a calendar year end? Could Smithon be converted to an S corporation? Does the potential of significant capital investment in Smithon affect any of your answers for 2 a-c above?You Decide: It’s your turn as a tax professional to decide on the best course of action from a tax perspective on these issues as presented above. For each issue, begin by restating the issue and numbering as shown above, i.e., 1(a), 1(b), and so on. Then, explain and discuss the tax rules that apply to the issue, which you gleaned from your tax research. Then, conclude with a definitive answer to the issue, supported by citations to the sources used. So, for each issue, you should: State the issue, Explain and discuss the applicable law (IRC sections, regulations, court decision, etc.), and Present your answer concisely (i.e., to the point) and in the form of a concluding paragraph that refers to specific language from the IRC sections, regulations, court decisions, and other sources (if applicable) to support the conclusion.CITATIONSCitations are required. You must provide cites whenever you refer to the sources of tax law used in this memorandum. You may cite your sources in numbered footnotes, numbered endnotes, or in parentheses immediately after the sentence mentioning the cited source. " - Sent to Accounting Expert Tutor on 4/7/2011 at 3:28pm
