The relative advantages and disadvantages of s-corporation taxation and partnership taxation

RESEARCH PROJECT 2 PROMPT
For this research project, you will consider a very practical question. While it may initially seem
unrelated to the Christian worldview, as you study it, you will see that it has deep implications for
the Christian businessperson and the Kingdom of God. The issue is: “which form of business
organization is best for a client in a given situation and how should that entity be taxed?”
As noted, at first blush, this very practical question may seem to have very little to do with the
Christian worldview. That conclusion, however, would be in error. The Bible is a very practical book
and it is concerned with every facet of our lives. There is no part of the universe over which Jesus
is not Lord (See, e.g., Matthew 28:18). Accordingly, there is no part of our lives with which He is
not concerned.
Further, we as Christians should be good stewards of what God has given us, and we should be
about the business of being fruitful and multiplying and taking dominion over the Earth (See, e.g.,
Genesis 1:28–31, 9:1 and 7). A primary means for accomplishing these goals is through just
commercial activity conducted through business enterprises.
Consider this: the Pilgrims and Puritans who settled what is now Massachusetts did so via the
business organization known as a Joint Stock Company. Business enterprises have developed cures
for various diseases. They have built skyscrapers that tower over the landscape like mountains and
dug vast tunnels under the sea beds. Businesses have been essential in accomplishing this amazing
level of dominion over the earth and helping us to be fruitful and multiply and fill the earth just as
God commanded.
Therefore, choosing the right business organization form and tax regime for a new business is very
much a God-honoring endeavor. With that said, now consider the following fact pattern for this
research project:
Alex, Bill, Carl, and Devon inherit from their Dad an operating organic farm in New State. The farm
includes an orchard, various vegetable garden tracts, fields usually planted in grains, several trout
ponds, and a poultry operation. In addition to selling the various organic products, the farm usually
invites the public in each year during the fall for a corn maze, pumpkin patch, and other
amusements. Alex, Bill, Carl, and Devon were never interested in farming, so their cousin, Xavier,
was trained to run the farming operation by Dad and has been helping Dad do so for the past 5
years. Xavier wants to continue to do that, and Alex, Bill, Carl, and Devon are willing for him to
continue to do that. Therefore, they want to form a business entity to own the farm, which Dad
ran as a sole proprietorship. Obviously, they don’t want a lot of formalities or complexities to “fool
with” since they want Xavier to handle the day-to-day operations of the farm. Further, they want
to minimize their taxes on the entity, they want to avoid any personal liability from the farming
operations, and they want to keep the business in the family (it might be fine to sell interests in
the business to their kids or to Xavier, but they would not want a stranger owning part of the
business).
They have discussed the deal with Xavier, and he is very excited. In fact, he proposes that the
business borrow an additional $500,000 and expand its operations to include a vineyard. There is a
bank willing to offer financing, but Alex, Bill, Carl, and Devon would have to be willing to sign
personal guarantees. They are still thinking it over, but they probably will proceed with Xavier’s plan
for expansion.
They want you to be their accountant in New State, and therefore they come to you for advice as

to which would be the best form of business organization to use for operating of the farm.
Alex, Bill, Carl, Devon, and Xavier are all Christians and want their business to be organized and
operated in accordance with the Christian worldview.
In view of their situation described above, which form of business organization would you
recommend? Explain fully, including the strengths and weaknesses of each form of business
organization and be sure to make application to the specific facts of this situation. Assume for the
purposes of this assignment that New State has typical statutes governing business organizations
and that New State’s taxation of business organizations follows the federal regime.
Suggest Helpful Resources:
For an excellent article discussing the relative advantages and disadvantages of s-corporation
taxation and partnership taxation, see Walter D. Schwidetzky, Integrating Subchapters K and S—
Just Do It, 62 Tax Law. 749 (2009). For an excellent discussion of one of the primary benefits of scorporation taxation for many closely held businesses, the minimization of employment taxes, see
Timothy M. Todd, Multiple-Entity Planning to Reduce Self-Employment Taxes: Recent Cases
Demonstrate the Pitfalls and How to Avoid Them, 13 Journal of Tax Practice & Procedure 31
(April/May 20
Style Instructions
These papers will require you to research and address realistic, hypothetical legal scenarios. Each of
these papers must be 7–10 pages in length (not including the title page, abstract, and
bibliography), in current APA format, with 1-inch margins, double-spaced, and in 12-point Times
New Roman font. Each paper must include citations to adequate sources supporting and/or
illustrating your positions. Each paper must include a title page, abstract, and bibliography in current
APA format. Please see the grading rubric for additional information.

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