Following the tax forums that have been provided by House ways and means committee as discussion drafts; that is, Revisions to subchapter k and subchapter S and a new unified pas through regime, I would prefer Unified pass through regime. This is because; the reforms under this draft are in high favor to parties’ members in case they incur losses while running their businesses. In accordance to foreign taxes and charitable contributions, this system provides a platform where limits for deducting loses are set to the basis of owner’s tax.
This is also a great option as it is an encouragement to new business formations. This is because it will provide property contributions with tax and money free basis. Unlike the Subchapter k system which will subject partners to tax where property contributions will be involved (Shah, 2014). The new regime system will therefore reduce costs that could be involved in payment of taxes while corporations and partnerships are establishing new business. Cost reduction will enable these businesses to yield high profits.
At instances where owners of businesses and corporate members are involved with structures that are complex, the regime system will serve a great purpose to these owners as it will discourage payments of taxes. According to this draft, it will restrict such situations by allowing only net capital losses and gains and credits of taxes to be assigned to owners specifically.
Regime system draft also offers a foundation where legal rules of members in partnerships and corporations businesses are equally and fairly preserved (Kaya & Vereshchagina, 2014). This is in relation to credits, gains, loses and incomes that they could be having while merging into these corporations. According to Shah (2014), these items should have characters that are the same while in the owner’s hands, same way that they have during entries into these businesses. This forum, would therefore, exercise equality among these members respectively.
I would also select this option as it will preserve profits and losses in regards to the property that each of the member has contributed. This system is very preferable because, in case these businesses gains profits, this capital will be equally distributed among members. On the other hand, loses that would be incurred by these businesses should also be shared hence; no one will be subjected to greater gains or rather loses in these corporations. This will therefore, promote unity as a result of solid relationships and discourage conflicts in businesses (Shah, 2014)
Kaya & Vereshchagina (2014) argues that, Regime system is also very crucial as it allows owners of partnerships and corporations to increase basis of taxes in regards to the interests that they own in businesses for the debts entry levels. This will be promoted by the compliance of these standardized laws that this draft intends to provide. Thus, these rules will be of great benefit to members as they will govern their properties in these business ventures.
I would select this system also because it will set legal rules that will aid in adjustments of assets when there is distribution of properties by the entities. These pass through entities will also be utilized where their interests will have a need to be transferred to and from partners. It will also ensure that payment of taxes will only be done where there will be economic gains that are real but not at instances which would involve returns of capital. This will be facilitated by limiting tax payments to owner’s distributions in accordance to their basis in these businesses.
SHAH, S. (2014). Soulful corporations. Heidelberg: Springer.
Kaya, A., & Vereshchagina, G. (2014). Partnerships versus Corporations: Moral Hazard, Sorting, and Ownership Structure . American Economic Review, 104(1), 291-307. doi:10.1257/aer.104.1.291
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