@061 CHAP ZZ

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       ³ CAPITAL-INTENSIVE BUSINESSES:  CHOICE OF ENTITY ³
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In general, capital-intensive businesses, such as high-
tech, retail, and manufacturing firms, are still good can-
didates for incorporating as C corporations, for several
major reasons:

      .  Limitation of personal liability is often highly
         important in these types of business (although an
         S corporation will provide the same degree of
         protection from creditors);

      .  Businesses of these types often need to retain
         a significant part of their earnings to facili-
         tate expansion, pay off long-term debt, etc.
         Accordingly, they are good candidates for income-
         splitting, taking advantage of low corporate tax
         rates on the first $75,000 per year of taxable
         income.  They are not subject to the flat rate
         34% tax that applies to certain personal service
         corporations.  Also, by the very nature of their
         business, it is often possible to justify accumu-
         lating large amounts of earnings in such corpora-
         tions over the years without incurring accumu-
         lated earnings penalty taxes, so long as the re-
         tained funds are used for business expansion, and
         not simply deposited in a bank account or invest-
         ed in stocks and bonds or similar non-business
         assets.

      .  These kinds of businesses may still adopt fiscal
         tax years, which can be used, with proper tax
         planning, to defer taxes (by using a January 31
         fiscal year, for example, and paying January
         bonuses each year to the employee-owners).

      .  Even if they are considered "closely held C cor-
         porations," they may invest in activities that
         generate passive losses and fully deduct these
         losses against "net active income" (but not
         against "portfolio income") of the corporation.

      .  C corporations have the advantage of being able
         to deduct medical insurance, medical reimburse-
         ment plan payments, disability insurance, and
         group term life insurance paid for owner-
         employees, which S corporations and unincorpor-
         ated businesses may not do, except on a very
         limited basis.

While C corporations will face the problem of double taxa-
tion when ultimately liquidated or sold, to the extent they
retain income, and to the extent they have assets that ap-
preciate, the problem of appreciating assets can be con-
trolled somewhat by keeping assets that are likely to ap-
preciate greatly over time, such as real estate, out of
the corporation (by having the owners buy such assets and
lease them to the corporation).  Double taxation on the
retained income itself will not occur unless you sell your
stock or liquidate the corporation during your lifetime,
since the stock generally gets a step-up in basis if it is
included in your estate when you die (at least under pre-
sent law).

@IF119xx]PLANNING POINT FOR @NAME:
@IF119xx]Your firm is currently a @ENTITY:
@IF119xx]ÚÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄ¿
@IF119xx]³In light of the advantages of C corporation status described³
@IF119xx]³above, perhaps you should consult your tax adviser regarding³
@IF119xx]³a possible shift to a C corporation, if yours is a capital- ³
@IF119xx]³intensive business that could benefit from such an entity.  ³
@IF119xx]ÀÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÄÙ