Entity Classification Judicial Doctrines

For the following problems, please discuss whether (1) there is an entity and (2) the type of entity for US federal income tax purposes. 

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Topic: Entity Classification Judicial Doctrines

For the following problems, please discuss whether (1) there is an entity and (2) the type of entity for US federal income tax purposes.

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***Note*** For some of these problems, there is no “right” or “wrong” answer. I am looking for a few sentences on your thought process why you came up with the response you did.

Problem 1:

A and B each have a professional accounting practice. They each have separate clients and generate separate revenues. To save on overhead costs, A and B agree to share an office and share the expenses of maintaining the office equally. They do not agree to share their respective revenues.

Problem 2:

C and D co-own, as tenants in common, farm property. C provides the funds for the operation, and D manages the farm property. They equally share in the profits from the farm property.

Problem 3:

Part a:  E and F set up a “trust” to hold money market mutual funds. They appoint G to act as trustee. G has the power under the trust agreement to buy and sell different money market funds and other investments. G frequently buys and sell different money market shares where he sees opportunities to make a profit. G receives a fee for his services as the trustee. E and F each own as beneficiaries an undivided one-half interest in the underlying money market mutual fund shares and they each have an equal right to all dividends and gains on the underlying money market mutual funds.

Part b:  If your answer to Part a is that the arrangement does form a “business entity” for US tax purposes, who are the “owners” of the entity?

Problem 4:

Part a:  H files paperwork with New York State to form a single member owned Limited Liability Company. The LLC is used for H’s violin business, through which H buys and sells violins, as well as conducts private lessons.

Part b:  H’s business s booming, but H needs funds to grow the business. H asks I, a wealthy relative, to invest in the LLC for 40% of the LLC’s ownership. I agrees and gives the LLC money which H uses to grow the business. I knows nothing about violins, and is happy to let H manage the business.

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