Theowners of The Car Wash have asked you to prepare their tax return.Their financial statements are audited by a local certified publicaccountant (CPA) firm, and they have provided them to you as areference. A copy of the Income Statement and Balance Sheet have beenreproduced below. In your discussion, you obtained the following piecesof additional information to prepare the tax return:Name of business owner:Tim Smith, SSN:123-45-6789Tim Smith’s address:8765 Warner Street, Huntington Beach, CA 92605Name of business owner:Jack Dillard, SSN: 987-65-4321Jack Dillard’s address:4321 Courtyard Place, Huntington Beach, CA 92605Business Name:The Car WashBusiness address:1046 Broadway Street, Huntington Beach, CA 92605Business description:Self-Service Car WashEmployer Identification Number:99-8877665Date the business started:January 1, 2008Business will file its return using the cash basis of accountingIncome StatementDecember 31, 20XXRevenue:Service Revenue$254,603Expenses:Advertising2,520Depreciation31,250Insurance7,260Interest expense36,204Licenses and fees7,260Miscellaneous4,074Office expense8,911Salaries and wages67,460Payroll taxes9,444Employee benefits1,349Professional fees1,210Repairs and Maintenance20,674Telephone900Travel1,500Utilities27,752Net income before taxes26,835Balance SheetJanuary 1, 20XXDecember 31, 20XXAssetsCash$28,638$64,979Buildings and other depreciable assets555,000555,000Accumulated depreciation(62,500)(93,750)Total assets521,138526,229Liabilities and equityLoans183,757167,962Mortgage233,229227,280Equity investment160,000160,000Retained earnings(55,848)(29,013)Total liabilities and equity$521,138$526,229Deliverable Length: Prepare the tax return for your client, addressing the following 2 scenarios:Scenario 1: The Car Wash is a corporation.Scenario 2: The Car Wash is a limited liability company (LLC).Obtain the appropriate tax return forms at the following Web site and save them to your computer:www.irs.govInstructionsfor how to prepare the applicable forms are available at the same Website. You may directly input text and numbers on to these forms usingReader. The forms do not self-calculate. Once complete, upload your taxreturn to the submitted assignments.Complete all of the requested attachments for the applicable tax return.Assume the following:The initial investment for each owner was $80,000. Each owner has an equal interest in the business.A $30,000 salary was paid to each owner. A part-time employee was paid $7,460.The loans and mortgage are long-term obligations.The annual tax depreciation on the car wash building is $47,453.The$555,000 property was depreciated for tax purposes using a 15-yearrecovery period, half-year convention (HY) and the Modified AcceleratedCost Recovery System (MACRS) depreciation method.Assume no change in the tax depreciation when calculating whether the alternative minimum tax applies.The organization does not have any carry forward net operating losses or tax credits.The organization does not qualify for any current year tax credits.Assume the following for a corporation:The corporation made estimated payments of $3,000 in 2010.Assume the business owners want to receive any applicable refunds.Only common stock has been issued.Assume the following for a partnership:The salary paid to each owner is a guaranteed payment.Partnership profit, losses, and capital are shared 50/50.The loans and mortgage are both recourse debt.Neither owner is a LLC member-manager.TheK-1 should reflect the partner’s capital account according to theUnited States’ Generally Accepted Accounting Principles (U.S. GAAP).Part IIDeliverable Length: At least 700 wordsYourclient has been informed that an S corporation is a popular businessform and wants to know more about it. Please write a professional memoto your client responding to his inquiry. Be sure to at least discussthe following items:What is an S corporation?When is it advisable to be taxed as an S corporation?How does an organization become an S corporation?If The Car Wash is a corporation, can they be taxed as an S corporation?Why or why not?What criteria must be met?If The Car Wash is a LLC, can it be taxed as an S corporation?If so, what does it need to do to elect S corporation status?How would The Car Wash report and pay tax if it is an S corporation?