TP$5-28.$ A wealthy taxpayer is planning to start an online business. The taxpayer expects to generate tax losses for at least the first $5$ years of the business. The taxpayer also hopes to cash out of the business within $10$ years by going public or selling to another business. Discuss the pros and cons of starting out as a regular C corporation versus a sole proprietorship $($or some other pass$-$through entity$).$ In your discussion, indicate whether the following matters.

a$.$ The investor cashes out via going public or by selling to another business.

b$.$ The investor is actively involved in the operations of the business.

How might your answers to parts $($a$)$ and $($b$)$ differ if the investor is not so wealthy?TP$5-28.$ A wealthy taxpayer is planning to start an online business. The taxpayer expects to generate tax losses for at least the first $5$ years of the business. The taxpayer also hopes to cash out of the business within $10$ years by going public or selling to another business. Discuss the pros and cons of starting out as a regular C corporation versus a sole proprietorship $($or some other pass$-$through entity$).$ In your discussion, indicate whether the following matters.

a$.$ The investor cashes out via going public or by selling to another business.

$b.$ The investor is actively involved in the operations of the business.

How might your answers to parts $($a$)$ and $($b$)$ differ if the investor is not so wealthy?respond?

TP$5-27.$ Let us assume, as was true of wealthy individuals in the United States in the $1960$ s$,$ that the personal tax rate is $70\%$ and realized capital gains are taxed at half the top personal tax rate$-$that is$,t_{cg}=35\%.$ Assume that the top corporate rate is $48\%.$ The before$-$tax rate of return on investments is $15\%.$ You are asked to advise a doctor as to whether she should incorporate. What would be the taxadvantageous strategy for $5-,10-,$ and $15-$year investment horizons? Suppose that she did incorporate and that $5$ years later, the personal tax rate unexpectedly falls to $50\%.$ Should she liquidate her corporation and start a new partnership?