To: Associate
From: Mandy Chi
Date: December 2, 2013
Re: L. Strauss
To: Associate
From: Mandy Chi
Date: December 2, 2013
Re: L. Strauss

Dear Mr. Strauss:
It was a pleasure talking with you last week. As we discussed, your proposed ownership structure would be treated as a partnership. Today I am writing to explain why Denim and Stuff will be treated as a partnership under your proposed structure.
The federal tax law defines partnership as the parties join together in the present conduct of an enterprise and share the profits or losses of the enterprise. The parties must have the intention to join together in good faith and with a business purpose. The definition is very general, but there are a few partnership indicia that can help define partnership. The partnership indicia includes but not limited to profit motive, joint division of profit, agreement to share losses, conduct of parties, participation in management, partnership agreement and so on.
Under your proposed structure, Mr. Lee gets half of Denim and Stuff’s profits, including both cash flow from operations and gains from any sale of capital assets or business divisions. It indicates a joint division of profit. Besides that, Mr. Lee personally guarantees half of the company’s loans and other obligations. By agreeing to guarantee half of the company’s obligations, Mr. Lee is taking the risk to bear losses. Under the proposed structure Mr. Lee is sharing the business’s profits and losses with you.
Moreover, Mr. Lee is participating in Denim and Stuff’s business operation. He has taken over a great deal of the business operations and become an essential part of the operation. Competitor companies have noticed his effort and even offer him job opportunities. There’s no doubt about the effort that Mr. Lee put in the company and his contribution to the company. It proves that he plays an