6-1 Activity: Federal Tax Incentives

TAX 655 Module Six Activity Guidelines and Rubric

Scenario

Partnership Basis: Three individuals recently formed Krypton Company, a company that manufactures car batteries, as a limited liability company (LLC). The three individuals—Jaylin, Aarna, and Richard—own equal interests in the company and substantial income from other sources. Krypton is a manufacturing firm and expects to earn approximately $130,000 of ordinary income and $30,000 of long-term capital gain each year for the next several years. Jaylin will be a full-time manager and will receive a salary of $60,000 each year.

Tax incentives, which include deductions, exemptions, and tax credits, incentivize or encourage businesses to do the right thing in certain areas. These incentives allow the government to acknowledge “acceptable” decisions a business has made. Incentives provide economic and social meaning and give back to socially responsible businesses. Savvy corporation owners should always be looking for ways to incentivize their partnerships.

This activity will help you with the Project Two milestone and Project Two, where you will be required to further explore tax incentives. As you consider these incentives, think about how this may have an impact on the corporation in your project.

Directions

Complete both Part One and Part Two of the activity.

Part One: Tax Incentive Chart

Choose three federal tax incentives that may benefit this company focusing on general and limited partnerships and complete the chart in the given activity. Each cell in the table should include a paragraph describing the given characteristic. Additionally, use the Shapiro Library Accounting Resources Guide and credible resources to research tax incentives to consider when completing the activity.

Specifically, you must address the following rubric criteria:

1. Explain the incentive law and origin for general and limited partnerships for each of the three incentives you have chosen. Consider the following in your response:

   Timing of law origin
   Government’s rational behind starting incentives

2. Discuss the incentive effects on general and limited partnerships for each of the three incentives you have chosen. Include the following in your response:

   Current incentives and their benefits
   Social and economic results of these incentives

Address any future implications for incentives on general and limited partnerships for each of your chosen three incentives. Include the following in your response:

Capital investments based on current tax law and incentives
Effect of incentives on its employees

Part Two: Recommendations to LLC

A colleague has asked you for recommendations on their client, the LLC described in the scenario. Consider the scenario again, then compose an intracompany email to your colleague, who is struggling with ideas to present to this client.

Specifically, you must address the following rubric criteria:

1. Discuss any tax issues the owners should consider regarding the LLC’s initial year of operations. Include the following in your response:

   Partnership and partners basis in the LLC
   Equal interests among the three founders
   Tax filing requirements

Explain two federal tax incentives you recommend for this LLC. Consider the following in your response:

The timeline of formation of the company
The type of company
Any hiring that may have taken place

TAX 655 Module Six Activity Template
Directions
Complete this template by replacing the bracketed text with the relevant information.
Choose three federal tax incentives that may benefit this company, focusing on general and limited
partnerships. Each cell in the table should include a paragraph describing the given characteristic.
Additionally, use the Shapiro Library Accounting Resources Guide (linked from the module resources)
and research tax incentives to consider when completing the activity.
Incentive Law and Origin
[Insert
Incentive 1]
[Insert
Incentive 2]
[Insert
Incentive 3]
Incentive Effect
[Insert text.]
[Insert text.]
Future Implications for
Incentives
[Insert text.]
[Insert text.]
[Insert text.]
[Insert text.]
[Insert text.]
[Insert text.]
[Insert text.]