Fred and Wilma Flintstone are the sole shareholders of Bedrock Rock (BR), a busi

Question

Fred and Wilma Flintstone are the sole shareholders of Bedrock Rock (BR), a business organized as a C corporation that provides natural stone and rock countertops. In addition, they co-own Cave Dwellings (CD), an unincorporated business that holds a single property - a warehouse to store the rock sold by BR and allow potential customers to examine rock countertops for purchase. BR leases the warehouse from CD. In 2017, Bedrock Rock (BR) generated substantial taxable income ($400,000) as business was quite good. CD, on the other hand generated a taxable loss of $40,000 for the year. Fred and Wilma are material participants in both BR and CD Fred and Wilma would like to report the taxable results of BR and CD as a single activity to avoid any potential issues with the deferral of the loss on CD as a passive activity. You may assume that the rent charged by CD to BR is ordinary and reasonable in amount. Please prepare a tax research memo in good form addressing the issue as to whether the Flintstones may group the two activities as a single activity or if they must report them separately and what the tax consequences are of each choice You will need to support your conclusion using primary sources of tax law

Explanation / Answer

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Citation: The State university of Georgia

Tax research memo in good form:

Organizing it:

It will have 2 major parts namely the main text and the supportive materials of authoritative in nature

The main text will have facts, issues, concluding remarks, analysis statements and the conclusive results

tax will be $46,278.75 + 33% of the amount above $190,150

400,000-190,150 = 209,850

0.33*209850 = 69250.5

Tax for $ 400,000 = $115,529.25

But if the same tax return had been filed together, then the total income will be 400,000 - 40,000 = 360,000

The joint tax for $360,000 will be

$51,791.50 + 33% of the income above $231,450

400000-231450= $168,550

0.33 * 168550 = 55621.5

tax = 51791.5 + 55621.5 = 107413

tax for $ 360,000= $107,413

The difference between individual filing and the joint filing = 115529.25 - 107413 = 8116.25

As it gives an extra return of $8,116.25, it is better to file the tax return jointly

C Corporations are taxed separately but the S corporations are not;

C Corporations suffer double taxation on the dividends paid out;

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