Starting a business.

• Author: Ellentuck, Albert B.
• Position: Tax planning - Checklist

Facts: Barney Dino is tired of his job at Anonymous Corp. and has sufficient funds available to pursue his dream of opening a restaurant, Barney's Grotto and Clam Bar. He plans to consult with his tax adviser about business start-up issues, including choice of entity, capitalization and expenses. Issue: What are the tax considerations in Barney's proposed business venture?

Analysis

The following checklist can be used to focus on the important issues confronting a client considering starting a business.

Client:

Procedures "[check]" or N/A Initials Date 1. Establish a profile of the client's start-up business, focusing on the nature of the client's business operations and goals clarification. 2. Evaluate the liability exposure inherent in the business and identify ways to minimize this liability through entity selection. 3. Review the problem of double taxation and identify ways to eliminate or mitigate the problem. 4. Consider the advantages of C corporation status, focusing on the interplay of the C corporation issues of double taxation and the favorable tax rates that apply to relatively low levels of C corporation taxable income. 5. Evaluate the advantages and disadvantages of S corporation status, focusing on the relatively inflexible rules on the number of shareholders, types of permitted shareholders and the one-class-of-stock rule. 6. Review the advantages and disadvantages of partnerships, focusing on the flexibility to tailor ownership interests with varying rights to cashflow, liquidation proceeds and tax benefits. 7. Consider the tax and nontax advantages and disadvantages of limited liability company (LLC) status, focusing on the lack of legal certainty regarding the extent of liability protection offered by LLCs. 8. Evaluate the advantages and disadvantages of limited liability partnership (LLP) status for professional practice businesses, focusing on whether the practice can operate as an LLC rather than as an LLP. LLC status is generally preferable if it is available. 9. Consider the advantages and disadvantages of sole proprietorship status for the business, focusing on whether liability can be adequately limited via insurance and other measures, rather than using a corporation, LLC or LLP to operate the business. 10. If incorporating tax-free, ensure that the shareholder does not receive debt securities in exchange for property transferred to the corporation in a Sec. 351 transfer. Debt securities are now classified as boot...