Tax II—Spring 2013

Tax Project

Well, it’s been a busy day in your office. Here it is April 19, you’re just past tax season and two sets of ‘colorful’ clients have come in with tax problems seeking your advice.

Client One

Tony Stark has had a bad day. As Iron Man he was defeated by Batroc ze Lepair (he’s French, talks funny and is essentially a joke villain, hence Tony’s depression). Tony has decided he needs help and has agreed to form a partnership with Bruce Banner and Frank Castle called “Avenge This”.

As he is usually loaded (financially and otherwise) he will bankroll most of the operation. He will have a 70% capital interest, Bruce 20% (he has some income from inventions developed during his calmer moments—it’s not easy being green) and Frank will get 10% (he spends all of his money on equipment as he keeps breaking things—after all he is the ‘Punisher’.

They will allocate 45% of the income based upon capital accounts.
The balance of the profits will be allocated based upon services (super-heroing is very labor intensive). The big hitters, Tony and Bruce will each get 40% and Frank 20% (of the remaining 55% of the profits). However, Tony is in a high tax bracket and has asked that the cost recovery deductions be allocated solely to him. Bruce and Frank agree. Both are in low tax brackets, Bruce has a large medical deduction for tranquilizers and Frank spends 90% of his income on ammunition (mostly to fend off fans who have seen his movies).

Despite their initial contributions, they will have to borrow some capital. Tony believes they can get financing on their headquarters with a qualified non-recourse loan, but that the equipment financing may have to be recourse—Frank claims he would persuade the bank otherwise and Bruce, getting upset, rumbles something about ‘smashing through red tape’.

Tony has deep pockets but knows Bruce has anger issues and can spread destruction when capturing super-villains. He suggests maybe they…