Accounting -Research Problem 2. Jonathan has owned and operated a golf driving range

| January 31, 2017

Research Problem 2. Jonathan has owned and operated a golf driving range for a number of years. The sole proprietorship has been successful and grown to the point where it now also offers golf lessons and sponsors tournaments and other activities. Jonathan has been advised that incorporating his proprietorship would give him an opportunity to restruc- ture the business debt and to acquire additional working capital at more favorable rates.

Based on this advice, Jonathan transfers the business assets (fair market value $1 mil- lion, adjusted basis $200,000) along with the associated debt ($325,000) to the newly formed corporation. As far as he is concerned, nothing has really changed in his relation- ship with the creditor bank: he still feels personally obligated to pay off the debt. In fact, before the debt is assigned to the newly formed corporation, the bank insists that Jona- than remain secondarily responsible for its payment (i.e., he guaranteed the debt). Even though the proprietorship�s liabilities transferred exceed the basis of the assets trans- ferred, Jonathan regards the transaction as tax-free because:

Nothing has changed with his business other than its form of operation.
A business justification exists for changing its form to that of a corporation.
He has enjoyed no personal gain from the transaction.
He is still obligated with respect to the debt.Determine whether Jonathan is justified in his position. If you believe the transaction as currently planned would be taxable, identify strategies that could be used to eliminate or reduce gain recognition.
Partial list of research aids:� 357(c).

Use the below guidelines to write this paper.

Facts: Succinctly state the facts relevant to the resolution of the taxpayer’s issue. Doing so involves reviewing the facts to include only those relevant to answering the question(s) at issue in your memorandum.
Question Presented: State the question or questions your memorandum seeks to answer. If possible, present it in a single sentence (e.g., “Will Mr. Smith have to include the value of the property in income?”). Most (if not all) of the memoranda you will be assigned will present a single, overarching question. Granted, there may be multiple issues that you have to analyze to answer this question, but all of them go toward answering the larger question –such as whether the taxpayer has to include the value of some property in income.
Short Answer: State the answer to the “Question(s) Presented” as clearly and succinctly as possible –again, preferably in a single sentence. (For example, your “Short Answer” to the “Question Presented” answer above might be, “Mr. Smith will have to include the value of the property in income.”)
Analysis: This is the substantive portion of your memorandum and is worth the majority of the points on the assignment. It is where you present all of the analysis that is required to support your “Short Answer.” In performing your analysis, you should use the general “IRAC” approach you have learned and utilized to date, although you will not have specific sections within the “Analysis” listed as “Issue,” “Rule,” “Analysis,” and “Conclusion.” Once you have identified the issue or issues that you have to resolve to answer the “Short Answer,” you will need to perform tax research to identify tax authorities to establish the controlling “rule” that resolves that issues. Your analysis for each of these issues should review these authorities and then apply them to the facts of the case to draw conclusions.
Compose a 2 page length, double-spaced, 12 font memo showing proper tax law citation and references. Note: Please remember that this memo must be in your own words except for properly cited rules or quotes. (Please refer to Chapter 2 for proper tax law citation). Please note that you may NOT use your textbook as one of the research sources for your paper.

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