Lesson 1-In Class Exercises

Consider the following situations:

1.	Alice and Bill plan to go into business together.  They anticipate losses in the first two or three years, which they would like to use to offset income from other sources.  They are also concerned about exposing their personal assets to business liabilities.  Advise A & B as to what form of business would best satisfy their concerns.

2.	Bruce and Bob organize Black LLC on May 10 of this year.  What is the default rule for the entity’s tax classification?  Are any alternative classification(s) available?  If so 1) how do Bruce and Bob elect the alternative classification(s) and 2) what are the tax consequences of electing an alternative classification?

3.	John and Wilbur form White Corporation on May 3 of the current year.  What is the default rule for the entity’s tax classification? Are any alternative classification(s) available?  If so 1) how do John and Wilbur elect the alternative classification(s) and 2) what are the tax consequences of electing an alternative classification?

4.	Barbara organizes Blue LLC on May 17 of the current year.  What is the default rule for the entity’s tax classification? Are any alternative classification(s) available?  If so 1) how does Barbara elect the alternative classification(s) and 2) what are the tax consequences of electing an alternative classification?