Question

Facts: Two individuals, Aaron and Bob, want to form a new business venture, invest $5,000 each in it, and raise additional capital of $10 million from either a handful or thousands of investors.

a. What are the three principal alternative regimes in the Code for taxing the business income that might be earned by such a venture (identify by subchapter name)?

Answer 1

Aaron and Bob can be taxed as any of the following three regimes:

1. Partnership (ie., Sub chapter K) wherein the business is taxed as partnership.
2. Corporation (ie., Sub chapter C) wherein the business is taxed corporation ie taxed on profits as a separate entity.
3. S corporation (ie., Sub chapter S) since members are less than 100 and can enjoy benefits of incorporation and get taxed as partnership.