The Relevant Facts,

Specific Issues, and Conclusions sections of the memo should be thorough but concise. The key

portion of the memo will be the Support section, which should be properly supported by

appropriate regulation citations $($be specific with section, number, paragraph, and subparagraph

as applicable

SCENARIO:

Chris and Sue are $50$ percent shareholders in the BackBone personal service corporation.

BackBone provides chiropractice services in four small towns: Troy, Union, Vista, and willow.

Chris is the main chiropractor in the Troy office, and Sue heads the Vista office. The two other

offices have chiropractor employees running the practices, but that is where BackBone$$s trouble

lies. Charlie, the main chiropractor in the Willow office does not see eye$-$to$-$eye with Chris and

Sue on management styles. Charlies does not take well to any interference in how he runs the

office, the hours he keeps, or the therapy techniques he employs.

Firing Charlies is not an option for two reasons. First, it is difficult to find chiropractors who

want to work and live in small towns. Second, and most important, if Charlie were to leave

BackBone, he would start his own practice in Willow. He is very good with patients and easily

would be able to take at least $80$ percent of the clients in Willow. Sue and Chris have noticed that

some of the patients in Union drive to Willow because they prefer Charlies to Joe, the

chiropractor in their Union office. Chris and Sue do not want to compete with Charlie and would

prefer that the practice come up with an arrangement that would make everyone happy. They

already pay Charlie handsomely. So more salary is not the solution. For Charlies, it seems to be

a matter of control. Chris and Sue may be willing to give up control of the Willow office, but

they do not want to completely lose the profits this office adds to BackBone. Chris and Sue have

come to you for some suggestions on how to solve this problem with the lowest tax cost.

Provide BackBone with several options and the tax consequences of each. Support your

conclusions with primary citations