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Scenario Carrie Carson: Carne is a 60year-old tai chi instructor iving in Santa Fe, New Mexico. For many years, she practiced in Holywood, and because of an acting background, she developed a clientele including many celebrities. About five years ago, when her husband died, she moved to Santa fe to escape life in the fast lane, and many of her celebrity cients stil see her on a regular basis. The celebrities rave about Carrie and her techniques and endone her for free.At the encouragement of her celebrity friends, Carrie has developed a unique set of products that she would li ke to market, but she readily admits she has no marketing expe rtise. David Duncant Dave is a 50-year-old marketing expert. He started his marketing careerinthe home office of a major chain of brick-and-mortar stores 25 years ago; overthe years, he expanded his role within that company to include management of internet marketing operations. He retiredtwoyears ago when that company was acquired, and he moved to Santa Fe with his children. As a result of the acquisition, Dave recveda large severance package. He became a dlient of Carie a year ago. They have become good friends and look forward to working together. Dave is divorced and has two dependent children, one in college in Boston and the otherin high school in Santa Fe. Naomi Nelsonc Naomi is the 30-year-old manager of an auto parts warehouse in Santa Fe. She enjoys her job but has gone as far as she can with that company Naomi is looking for anopportunity with a startup company and got to know Carrie through mut ual friends. Naomi is single and has no children Andrew Andersonc Andy is a 65-year-old recently retired airline pilot. Andy has been a lifelong fanof yoga andtaichi and has been going to Carrie's dasses almost since the day Carrie moved to Santa Fe. Andy and his wife have always been prudent managers of their money, and they have a substantial net worth Andy receives mil tary and airline pensionincome, plus his wife is a successful veterinarian and continues to practice. Andy and his wife are interested in nvesting cash to help Carrie's busine ss expand rapidly, and Andy would like to work at least part time for the business. Andy and his wife have three grown children that are independent Carrie is present ly operating as a proprietorship grossing $200,000 a year and netting $100,000 a year after expenses. She has designed her line of clothing and other wearable gear, plus DVDs and other products suitable for med tation, practicing tai chi, and similar ac tivities. She has obtained copyright protection forher creative work to the extent allowed bylaw. Camie does not have any inventory at the present time but plans to acquire inventory and begin marketing and selling her products shortly after form ing the new entity.Carrie does not plan to manufacture her products. She will contract that activity out to manufacturing companies recommende d by her celebrity friends experienced in the marketing of their own personal ines. In addition, one of Carrie's closest friend's business managers has agreed to offer his services as a consultant to help Dave adapt his skil set to marketing Carrie's line of products. Dave has mapped out a business plan calling for modest sales and noor little profit in the firstyear, but once things catch on, he projects considerable growth and profit potential as follows: Year Net 1 millon 5 million 15 milion 30 milion None 500 2 million 5 mill ion 10 million Carrie, Dave, Naomi, and Andy all plan to become owners of the business in the following ownership percentages, but they are open to your suggestions Carrie, so% Dave, 20% * Naomi 5% Andy, 25% * Carrie will be cributing her designs, good will, and contacts willing to endorse her products for free Dave and Naomi wal be contribut ing their hard work and expertise Andy will be contributing $500,000 to cover the cost of inventory and initial marketing and other operating expenses Because the products will be marketed to customers in connection with a physical activity, all four future owners are concerned about potential product and other labilty and wantto make sure the choice of business entity protects them from personal liability should an adverse event result from product use. They plan to name the business TaiGa The Tai-Ga organizers (hereafter, "the Organizers") want your professional advice regarding whether they should form a partnership an 5 corporation, a C corporation, or some other type of business entity This project will consist of four memor andums produced prior to three meetings with the Organizers In the first meeting you are tasked with preparing a memorandum to the Organers recommending a type of business entity and how it should be capitalizecd The form that you recommend for Tal Ga will be based on the tax and Bability concerns communicated to you by the Organizers, in your memorandum, you will address those concerns by disoussing the tax and imited iabili ty effects of the different entity options available to the Organizers, and you will recommend what you feel is their best choice based on that discussion. Assume that the oranzen are concerned about minimizing their total tax impact (the sum of the personal and entity tax cost) but even more concemed about minimuing personal labity . Make a recommendation for the appropriate inventory cost flow ass umption for a merchandising business Scenario Carrie Carson: Carne is a 60year-old tai chi instructor iving in Santa Fe, New Mexico. For many years, she practiced in Holywood, and because of an acting background, she developed a clientele including many celebrities. About five years ago, when her husband died, she moved to Santa fe to escape life in the fast lane, and many of her celebrity cients stil see her on a regular basis. The celebrities rave about Carrie and her techniques and endone her for free.At the encouragement of her celebrity friends, Carrie has developed a unique set of products that she would li ke to market, but she readily admits she has no marketing expe rtise. David Duncant Dave is a 50-year-old marketing expert. He started his marketing careerinthe home office of a major chain of brick-and-mortar stores 25 years ago; overthe years, he expanded his role within that company to include management of internet marketing operations. He retiredtwoyears ago when that company was acquired, and he moved to Santa Fe with his children. As a result of the acquisition, Dave recveda large severance package. He became a dlient of Carie a year ago. They have become good friends and look forward to working together. Dave is divorced and has two dependent children, one in college in Boston and the otherin high school in Santa Fe. Naomi Nelsonc Naomi is the 30-year-old manager of an auto parts warehouse in Santa Fe. She enjoys her job but has gone as far as she can with that company Naomi is looking for anopportunity with a startup company and got to know Carrie through mut ual friends. Naomi is single and has no children Andrew Andersonc Andy is a 65-year-old recently retired airline pilot. Andy has been a lifelong fanof yoga andtaichi and has been going to Carrie's dasses almost since the day Carrie moved to Santa Fe. Andy and his wife have always been prudent managers of their money, and they have a substantial net worth Andy receives mil tary and airline pensionincome, plus his wife is a successful veterinarian and continues to practice. Andy and his wife are interested in nvesting cash to help Carrie's busine ss expand rapidly, and Andy would like to work at least part time for the business. Andy and his wife have three grown children that are independent Carrie is present ly operating as a proprietorship grossing $200,000 a year and netting $100,000 a year after expenses. She has designed her line of clothing and other wearable gear, plus DVDs and other products suitable for med tation, practicing tai chi, and similar ac tivities. She has obtained copyright protection forher creative work to the extent allowed bylaw. Camie does not have any inventory at the present time but plans to acquire inventory and begin marketing and selling her products shortly after form ing the new entity.Carrie does not plan to manufacture her products. She will contract that activity out to manufacturing companies recommende d by her celebrity friends experienced in the marketing of their own personal ines. In addition, one of Carrie's closest friend's business managers has agreed to offer his services as a consultant to help Dave adapt his skil set to marketing Carrie's line of products. Dave has mapped out a business plan calling for modest sales and noor little profit in the firstyear, but once things catch on, he projects considerable growth and profit potential as follows: Year Net 1 millon 5 million 15 milion 30 milion None 500 2 million 5 mill ion 10 million Carrie, Dave, Naomi, and Andy all plan to become owners of the business in the following ownership percentages, but they are open to your suggestions Carrie, so% Dave, 20% * Naomi 5% Andy, 25% * Carrie will be cributing her designs, good will, and contacts willing to endorse her products for free Dave and Naomi wal be contribut ing their hard work and expertise Andy will be contributing $500,000 to cover the cost of inventory and initial marketing and other operating expenses Because the products will be marketed to customers in connection with a physical activity, all four future owners are concerned about potential product and other labilty and wantto make sure the choice of business entity protects them from personal liability should an adverse event result from product use. They plan to name the business TaiGa The Tai-Ga organizers (hereafter, "the Organizers") want your professional advice regarding whether they should form a partnership an 5 corporation, a C corporation, or some other type of business entity This project will consist of four memor andums produced prior to three meetings with the Organizers In the first meeting you are tasked with preparing a memorandum to the Organers recommending a type of business entity and how it should be capitalizecd The form that you recommend for Tal Ga will be based on the tax and Bability concerns communicated to you by the Organizers, in your memorandum, you will address those concerns by disoussing the tax and imited iabili ty effects of the different entity options available to the Organizers, and you will recommend what you feel is their best choice based on that discussion. Assume that the oranzen are concerned about minimizing their total tax impact (the sum of the personal and entity tax cost) but even more concemed about minimuing personal labity . Make a recommendation for the appropriate inventory cost flow ass umption for a merchandising business

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