Reference no: EM131920173

Corporate Background - Quark, Inc. is a calendar-year accrual-based C corporation.

Marvin Marshon owns 100% of the Quark stock.

Quark manufactures aluminum casing for the lighting industry.

At the beginning of 2017, Quark had $2 million of accumulated earnings and profits.

Situation - Quark's management has come to you and indicated that it has excess cash that Marvin wants to use personally.

Quark intends to loan $500,000 to Marvin by the end of 2017.

Quark gave you interim 10/31/17 financial statements. You have been able to determine that Quark will have $300,000 in working capital needs at the end of 2017.

You are also aware that Quark needs equipment that will cost in the range of $150,000 to $250,000 but it has no current purchase orders or other arrangements.

Additional Information

Its interim balance sheet shows $800,000 in current assets (other than inventories) of cash and marketable securities held for investment.

Quark has not paid dividends yet this year or last year.

Quark projects its taxable income to be $1,000,000 (not counting deductions for any equipment purchases).

The taxable income amount includes a deduction for Marvin's salary of $200,000.

Special Considerations

Assume that there are no charitable contribution, capital gain/loss or net operating losses (or any carrybacks or carryovers).

Also, ignore the dividends received deduction.

Advise Quark about its potential tax problems and about any solutions you may have to reduce tax liability.