Taxation Research Project

Taxation Research Project

(Author’s name)

(Institutional Affiliation)


This research project is about two brothers who want to start a lawn care business that will sustain them as they complete their education. Their lawyer has advised them to make use of an LLC because of its tax advantages and flexibility; however, they are of the opinion that they need a second opinion on tax plans that would be suitable for them as their lawyer is not a tax expert. One thing clear about these two partners is that they want to structure their plan so that it costs them the least tax burden. The paper will, therefore, construct a research memorandum for their file and write a letter to the partners explaining the findings and recommendations of the research carried out.

Research Memorandum

Miranda, Dirkinhood & Sons

Certified Public Accountants

Brooklyn, NY

Relevant Facts

Two brothers own the business

They share both the profits and losses equally

The business will be profitable right away

They have a loan

They will both work in the business for not less than 30 hours

The partners share an apartment

They are students, they share their address with the business, they want to save tax money and

Do not want to evade tax

Specific Issues

Two partners own the business

The plan projects that they will make about 30, 000 dollars each in profits

They want to save as much tax as possible; they had borrowed 10, 000 dollars for start up

The owners are students, and they project that the business will be profitable right away


From the above information, the business is a service business owned by two individuals that deals with offering lawn care services to its customers. The business generates profits by charging for the services and labor provided to consumers. From the above facts, it is also clear that the business is a partnership. Support

One cannot classify the business as an LLC because most federal government does not recognize this business structure as a classification for purposes of federal taxes. To file for taxes, therefore, and for the government to treat this business as a viable business structure, a LLC usually has to file for more paperwork with the government (Kiyosaki, 2010). On the other hand, a partnership is the best way forward for this business because the two brothers do not have to register with the government and pay a usually high fee, as one does when creating a limited liability company or a corporation. In addition to this, because a general partnership is a tax entity that is pass through (the partners, and not the partnership, are taxed individually unless they require to be taxed as a corporation) filing for returns of income tax is much easier. Therefore, there is no need to register for tax returns that are separate for the owners and the corporate entity unlike in a regular corporation. Since the two partners are brothers, and they live together and trust each other, the partnership’s business related activities of one brother could legally bind the other (Clifford & Warner, 2008). The business structure is also suitable because the two brothers have an established agreement on how the partners will share the profits and losses between them, and what each partner’s roles and responsibilities are.

Actions to Be Taken

Since we have established that your business is a partnership, the two partners might need to establish and come up with an agreement of how profits and losses will be shared, what each partner’s responsibilities and duties are, and what will happen to the business in case one partner dies. After this, your business can be registered as a partnership. The partners are the ones to file a tax return to show the IRS their income and losses. Each partner should report his share of loss or income for the appropriate tax deductions (Daily, 2010).

Discuss with client. Date discussed:

Prepare a memo or letter to the client:

Preparer: Miranda, Dirkinhood & Sons

Reviewer: Perkins Brother’s Lawn Care

Letter to the Client


November 14, 2011

SUBJECT: Perkins Brother’s Lawn Care

ISSUE: to determine which is the best structure for their new business in lawn- care. To determine which structure best defines their business, and, which provides for them the best tax advantages without participating in any illegal activities.

DISCUSSION: there were several facts that were used to come up with the best recommendations for the two brothers. First, it was clear that the two brothers were equal partners in the business, who had borrowed some money from their uncle to start up a business. It was clear that uncle was not part of the partnership. The two brothers had agreed to share equally on the losses and profits of the business. They would both work equal hours in the business and share any liability. They also lived together and wanted to save as much tax money as possible. There lawyer had suggested that they value their company as a LLC. We disagreed with this suggestion because we felt that LLC’s require huge amounts of fee to be registered with the state. We also felt that LLC’s require additional forms and additional fees to be registered or categorized under a category recognized by the federal government as a taxable business structure. Because of these observations, we felt that a general partnership was the best way to describe your business.

Further, it was also thought that a general partnership was the best way to categorize your business because of its tax advantages since it was made clear that the partners want to spend as little as possible on taxes. General partnerships do not tax the corporate entity of a business like other business structures. In turn, it taxes individual partners by requiring them to state their income to the government. It was thought that this would be cheaper on the business when compared to other forms of taxation plans (Sullivan & Sheffrin, 2003).

RECOMMENDATION: it is recommendable to categorize your business as a general partnership.


Attorney Branch 3

Associate Chief Counsel

(Income Tax & Accounting)

Approved by: Miranda, Dirkinhood

Chief Counsel


Clifford, D. & Warner, R. (2008). Form a partnership. The complete legal guide. Berkeley, CA: NOLO

Daily, F. (2010). Tax savvy for small business. Berkeley, CA: NOLO.

Kiyosaki, R.K. (2010). Start your Own Business: the only start up book you will ever need. New York: Entrepreneur Press.

Raabe, W. A., Whittenburg, G.E. & Sanders, D.L. (2008). Federal tax research. New York: Cengage Learning.

Sullivan, A. & Sheffrin, S. (2003). Economics: Principles in action. Upper Saddle River, New Jersey: Pearson Prentice Hall