Tax Case study
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This memo will go about discussing the issues and resolution of them to assist the four physicians that have come to KPMG to get professional guidance on the type of entity they should become and taxation they should follow. The four physicians have found a location for the practice. It does not need any updates or repairs. They have also informed KPMG that they plan to purchase medical equipment for $1,500,000. To address what type of entity they should I recommend an S Corporation as described in the Code § 1361(a),(b)(1-2) in which it is defined:
(a) S corporation ...view middle of the document...
Since the physicians will solely own the practice an S Corp would be the best entity. With a corporation it limits the liability to the corporation and not to the owners of it so if there is a lawsuit it would be the practice getting sued not the personal entities of one of the four physicians. In an S Corp the owners reap the benefit of not paying double taxes because the income that the practice makes is then directly their income. Next to address the building the physicians should own the building under a separate entity. A Limited Liability Corporation should be formed to then own the building. The physicians would then rent the building from the separate entity to be able to deduct the rent expense. This is made possible under the Code § 162(a):
(a) In general
There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including-
(1) a reasonable allowance for salaries or other compensation for personal services actually rendered;
(2) traveling expenses (including amounts expended for meals and lodging other than amounts which are lavish or extravagant under the circumstances) while away from home in the pursuit of a trade or business; and
(3) rentals or other payments required to be made as a condition to the continued use or possession, for purposes of the trade or business, of property to which the taxpayer has not taken or is not taking title or in which he has no equity.
For purposes of the preceding sentence, the place of residence of a Member of Congress (including any Delegate and Resident Commissioner) within the State, congressional district, or possession which he represents in Congress shall be considered his home, but amounts expended by such Members within each taxable year for living expenses shall not be deductible for income tax purposes in excess of $3,000. For purposes of paragraph (2), the taxpayer shall not be treated as being temporarily away from home during any period of employment if such period exceeds 1 year. The preceding sentence shall not apply to any Federal employee during any period for which such employee is certified by the Attorney General (or the designee there of) as traveling on behalf of the United States in temporary duty status to investigate or prosecute, or provide support services for the investigation or...