Mimi\u2019s CupcakesTax Research Memorandum <\/p>\n
Mimi Charpentier, operates a successful sole proprietorship which sells cupcakes to retail customers at fourlocations in Las Vegas. \u00a0Mimi\u2019s Cupcakesdoes not carry any inventories, because of the nature of its products. \u00a0Mimi owns the four small buildings in which the shops exist. \u00a0One of the stores is slightly larger than the others; it is Mimi\u2019s original location, and it still is the site of the kitchen and the loading dock where the Cupcakes trucks daily pick up and deliver merchandise and supplies. \u00a0The workforce of each store is the equivalent of 2.5 employees; the employees are paid reasonably well, and the low-pressure atmosphere of the typical workday results in a very low turnover rate. \u00a0Mimi\u2019s offers only one fringe benefit to the employees \u2013it encourages the employees to use Health Savings Accounts for their medical costs, and Mimi\u2019s reimburses the employee for the out-of-pocket deductible amounts, to a $2,500 maximum per employee per calendar year.Mimi’s attorney, Gloria Willis, has urged Mimi to incorporate the business, primarily because of the limited shareholder liability associated with corporate status, and to facilitate a business succession plan for the operation. \u00a0After several years of discussions, Mimi has agreed to go ahead with this idea. \u00a0She plans to take a sixty percent ownership interest in the common stock of the new entity; twenty percent interests will be made available to Mimi\u2019s daughter Nancy, and to Joan Price, the chief operating officer of the business, who is not related to the other two shareholders.Mimi has operated the business as a cash basis sole proprietorship since 2009, and she anticipates incorporating the business on January 1 of next year. \u00a0A summarized projected balance sheet for the business as of December 31of this years attached. Willis\u2019 practice consists of general work with small business clients. \u00a0She is not by any means conversant with the federal income tax rules as they apply to individuals and C corporations. \u00a0In this process, Willis is concentrating on the establishment of the new corporate entity, the retitling of assets as they are transferred from the proprietorship to the corporation, and the mechanics of creating and issuing shares to the new shareholders. Nancy recently graduated from community college in restaurant and hospitality management, with an emphasis in financial recordkeeping. \u00a0Joan is about fifty years old, in good health, and planning to remain in charge of operating decisions for the three stores for the foreseeable future. \u00a0Neither Mimi nor Joan projects that the corporation would add a fifth store, nor would it expand outside of Las Vegas, but the parties review these issues at least once a year.<\/p>\n
The proprietorship does not carry any debt; its trade payables and receivables are disposed of in a timely fashion. \u00a0Its website allows for remote ordering, scheduled pickups, and deliveries of larger orders to customer locations. \u00a0Mimi\u2019s is active on Twitter and Facebook, where the company has about five thousand friends\/followers. \u00a0This presence allows Mimi\u2019s to plan and carry out \u201cspontaneous\u201d outdoor events on the stores\u2019 patios, where high-markup products are made available in plentiful quantities, this really made a difference in 2020.As Mimi has told you several times, \u201cthis is a simple business, and we know how to keep our customers happy and coming back on a regular basis. \u00a0I do not want the legal etc. aspects of an incorporation to disrupt the good thing that we have here.\u201d \u00a0But, in your dealings with Mimi over the years concerning her Forms 1040 and employment tax obligations, you know that she expects you to give her suggestions about how her tax liabilities would be affected by decisions that she makes, and that she expects to \u201cget it right the first time\u201d when she makes her choices.At Mimi\u2019s latest appointment with her hairdresser, Cathy Duvall mentioned that her own salon was about to incorporate, but that Duvall would retain her individual ownership of the land and building. \u00a0Duvall was certain that there were tax and legal advantages to structuring the corporation that way, but she could not really explain to Mimi what those advantages were <\/p>\n
.Required:You will be meeting shortly with Mimi, Nancy, and Joan to discuss the tax aspects of the incorporation.Be sure to review the following items: <\/p>\n
\u2022Review the various options available for operating the business and the tax consequences of these options. <\/p>\n
\u2022Mimi certainly will ask you to cover the issue of which assets to contribute to the new corporation, with the explanations that Duvall could not provide. \u00a0Concentrate on those issues for this meeting, offering at least two alternative plans for the asset transfers be sure to include computation of tax effect of the alternative plans.\u00a0 <\/p>\n
\u2022At the meeting, Nancy will look to you for information on issues of asset basis, as well as any effects that the incorporation might have on sales\/use and self-employment tax obligations. \u00a0\u2022Ignore any exposure to the individual alternative minimum tax. <\/p>\n","protected":false},"excerpt":{"rendered":"
Mimi\u2019s CupcakesTax Research Memorandum Mimi Charpentier, operates a successful sole proprietorship which sells cupcakes to retail customers at fourlocations in Las Vegas. \u00a0Mimi\u2019s Cupcakesdoes not carry any inventories, because of the nature of its products. \u00a0Mimi owns the four small buildings in which the shops exist. \u00a0One of the stores is slightly larger than the […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[16],"class_list":["post-26030","post","type-post","status-publish","format-standard","hentry","category-research-paper-writing","tag-accounting"],"_links":{"self":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/posts\/26030","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/comments?post=26030"}],"version-history":[{"count":0,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/posts\/26030\/revisions"}],"wp:attachment":[{"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/media?parent=26030"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/categories?post=26030"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/papersspot.com\/blog\/wp-json\/wp\/v2\/tags?post=26030"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}