A finished ACC-683 Topic 2 revocation break-even analysis example, comparing S and C taxation of retained income and an asset sale, and locating the discount rate at which revoking would pay. Searches like "acc 683 topic 2 assignment example", "acc683 topic 2 sample" and "acc-683 topic 2 example" land here.
What a finished ACC-683 Topic 2 revocation break-even analysis looks like
The finished analysis reduces the choice to cents per dollar before it uses the brewery's numbers. Those numbers are illustrative, and so are the siblings' assumed rates of 40 percent on ordinary income and 25 percent on capital gain and dividends. Retained in an S corporation, a dollar of income costs 40 cents now. In a C corporation it costs 21 cents now under section 11(b) and 19.75 cents more when the remaining 79 cents reaches the siblings. On $1,200,000 retained each year, revoking keeps $228,000 a year in the business. The asset sale planned for year six works the other way: $8,000,000 of appreciation taxed once costs $2,000,000, and taxed twice $3,260,000. Across the whole plan the C route costs $1,305,000 more, and it wins only above a 26.6 percent discount rate.
How an ACC-683 Topic 2 example is structured
Four passes build the analysis, each adding one layer of the siblings' plan. An opening states the question as the friend put it and lists the assumptions the case supplies, so every later figure traces to a stated rate. The first pass works one dollar under each regime, now and on distribution. The second applies those rates to five years of retained income, showing the annual cash advantage of revoking and the layer of tax it postpones rather than removes. The third adds the year-six asset sale, where corporate gain taxed under section 11(b) is followed by shareholder gain on liquidation under section 331. The fourth discounts both columns and finds the rate at which they meet. A risk section covers the accumulated earnings tax and the wait before an S election could be made again, and the recommendation keeps the election.
One dollar priced under each regime
At the case's assumed rates, a retained dollar costs 40 cents as S income, or 21 cents now plus 19.75 cents later as C income, which frames every larger figure.
The annual advantage of revoking, measured
Retaining $1,200,000 a year, the brewery keeps $228,000 more cash as a C corporation, a saving the analysis labels a deferral because the second layer still waits.
An asset sale taxed twice
Appreciation of $8,000,000 costs $1,680,000 at the corporate level and $1,580,000 on liquidation, against $2,000,000 once through the S corporation, so the sale alone outweighs five years of savings.
The discount rate where the columns meet
Revoking pays only if future tax is discounted at roughly 26.6 percent or more, far above the 7 percent the brewery pays on its bank line.
Retained earnings that would need a reason
A C corporation keeping cash beyond its reasonable business needs risks the accumulated earnings tax, so the rejected route would depend on documenting the planned second facility.
Paths on which revoking could win
A buyer willing to take stock at the same price, or shares held until death under section 1014, could change the answer, and neither matches the siblings' plan.
Where marks go in ACC-683 Topic 2
Most lost credit comes from comparing 21 percent with 40 percent and stopping, as the friend did, which ignores the tax waiting when C earnings leave the corporation. A paper that adds the dividend layer but omits the asset sale has priced the retention years and skipped the event the siblings are planning toward. Treating the $228,000 annual difference as a permanent saving rather than a deferral overstates the case for revoking by the whole second layer. Analyses that never discount leave the comparison to intuition, while many sections reward finding the rate at which the answer flips. Papers recommending revocation without the wait before re-electing present as reversible a choice that is close to permanent. Stating the siblings' rates as law, instead of as case assumptions, invites an accuracy deduction.
Get an ACC-683 Topic 2 example written to your instructions
Send the ACC-683 Topic 2 instructions, the rubric and the owners' facts and assumed rates from your case. A custom example is written to them, with the entity choice priced per dollar and in total, retention and exit both modeled, the break-even rate found and the rejected route's risks stated, returned in 24 to 48 hours. First one free, and coursework only, not tax advice.
ACC-683 Topic 2 questions, answered
Why is the 21 percent rate not the whole comparison?
Because a C corporation's income is taxed again when it reaches the owners, as a dividend or on liquidation. At the case's assumed 25 percent shareholder rate, the 79 cents left after corporate tax loses another 19.75 cents, so the combined cost of 40.75 cents slightly exceeds the S corporation's 40. The corporate rate buys time, and the analysis measures what that time is worth to these owners.
What does revoking the election involve?
Under section 1362(d)(1), shareholders holding more than half the shares can consent to a revocation, with timing rules that decide which year it first affects. Once revoked, a new S election generally cannot be made for five years without IRS consent under section 1362(g). A revocation made for a few years of retention is therefore closer to permanent than it sounds, and the analysis treats it that way.
Could the siblings avoid the second layer by never distributing?
Only for a while, and not cheaply. Earnings kept beyond the business's reasonable needs can attract the accumulated earnings tax, and an asset sale followed by liquidation brings the second layer due regardless. Holding shares until death can reset their basis under section 1014, but the corporation's own gain on selling its assets would remain. The example weighs these routes as coursework on composite facts, never as tax advice.