Acc 553

You Decide Assignment Title: C Corporations Concluded

Scenario Summary

You 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.

Role

After 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.

Activity

Given the scenario, your role and the information provided by the key player involved, it is time for you to make a decision.

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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?