DJ Jammer, a rapper/musician, travels around the country performing concerts on college campusesCustom Essay

DJ Jammer, a rapper/musician, travels around the country performing concerts on college campuses. He has two

employees who make up his road crew. The crew sets up his equipment and sells DJ Jammer memorabilia (CDs, T-

shirts, posters, etc.) during intermissions and after the concerts. For the last several years, Jammer has

operated his business as Jammer Entertainment, Inc. (JEI). JEI, a C corporation with Jammer as the sole

shareholder, has generated about 75% of its income from ticket sales and about 25% from memorabilia sales.

In January 2006, Jammer sets up a second corporation, Jammer Memorabilia, Inc. (JMI). The new corporation (JMI)

handles all memorabilia sales, while JEI now handles only the concert arrangements and concert ticket sales. The

two road crew employees continue to perform the same duties as before and continue to be paid by JEI. (JMI is

billed for the salaries paid on its behalf.) Jammer spends about 80% of his time on JEI activities and the

remainder on JMI. He set up JMI in order to sell the memorabilia business and concentrate on his career as an

artist/performer.

Instructions

Review the tax scenario

Upon audit, the IRS advises DJ Jammer that the new arrangement causes JEI to be classified as a qualified personal

service corporation. Write a memo to the file, evaluating the merits of the position taken by the IRS. Use the

IRAC Tax memo format: Issue, Ruling, Analysis, and Conclusion.