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Suppose you are a CPA hired to represent a client that is currently under examination by the IRS. Theclient is the president and 95% shareholder of a building supply sales and warehousing business. He alsoowns 50% of the stock of a construction company. The remaining 50% of the stock of the constructioncompany is owned by the client's son. The client has received a Notice of Proposed Adjustments (NPA)on three (3) significant issues related to the building supply business for the years under examination.The issues identified in the NPA are unreasonable compensation, stock redemptions, and a rental loss.Additional facts regarding the issues are reflected below:? Unreasonable compensation: The taxpayer receives a salary of $10 million composed of a $5million base salary plus 5% of gross receipts not to exceed $5 million. The total gross receipts ofthe building supply business are $300 million. The NPA by the IRS disallows the salary based on5% of gross receipts as a constructive dividend? Stock redemptions: During the audit period, the construction company redeemed 50% of theoutstanding stock owned by the client and 50% of the stock owned by the client's son, leavingeach with the same ownership percentage of 50%. The redemption was treated as a distributionunder Section 301 of the IRC by the IRS.? Rental loss: The rental loss results from a building leased to the construction company owned bythe client and his son.Use the Internet and Strayer databases to research the rules and income tax laws regarding unreasonable compensation, stock redemptions treated as dividends and related party losses. Be sure touse the six (6) step tax research process in Chapter 1 and demonstrated in Appendix A of your textbookas a guide for your written response.Write a three to four (3-4) page paper in which you:
1. Based on your research and the facts stated in the scenario, prepare a recommendation for theclient in which you advise either acceptance of the proposed adjustments or further appeal of theissue based on the potential for prevailing on appeal.
2. Create a tax plan for the future redemption of the client's stock owned in the constructioncompany that will not be taxed according to Section 301 of the IRC.
3. Propose a strategy for the client to receive similar amounts in compensation in the future andavoid the taxation as a constructive dividend.
4. Use the six (6) step tax research process, located in Chapter 1 and demonstrated in Appendix Aof the textbook, to record your research for communications to the client.
Find the present value of the following ordinary annuities: $400 per year for 10 years at 10% $200 per year for 5 years at 5%, $400 per year for 5 years at 0%.
Prepare journal entry to record the issuance of the bonds and the related bond issue costs incurred January 1, 2009. Prepare a bond ammortization schedule up to and including January 1, 2013 using effective interest method
Would you answer in above question be different if the shareholder had also lent the subchapter S corporation cash in an amount in excess of the shareholders' allocable share of losses and deductions, and if so how?
The same selling price is expected for 2011. Logan's variable cost per unit will rise by 10% in 2011 due to increasing material costs, so they are tentatively planning to cut fixed costs by $10,000. How many units must Logan sell in 2011 to mainta..
The following costs were incurred in August: Direct materials $37,000 Direct labor 14,000 Manufacturing overhead 38,000 Selling expenses 10,000 Administrative expenses 28,000 Conversion costs during the month totaled:
Which of the following best describes an opportunity cost?
Bailey, inc. buys 60% of the outstanding stock of luebs, inc. Luebs owns a piece at cost of $200000 but was worth $500000 at acquistion date. What value should be attributed to this land in consolidated balance sheet at the date of takeover, Using..
Maxey company had current and noncurrent liabilities of $50,000 and $150,000, respectively. The company's current assets were $76,000, out of a total asset figure of $424,000. Calculate the company's debt ratio.
Tazmania Inc. had pretax financial income of $154,000 in 2007. Prepare Tazmania's journal entry to record 2007 taxes, assuming a tax rate of 45%.
If the standard deviation of back charges is $650, and alpha = 0.05, test the claim of the engineering firm. Perform an appropriate hypothesis test, showing the necessary calculations and/or explaining the process used to obtain the results.
Two parents have decided to establish an investment program. They estimate it will cost $40,000 per year for four years. Their investment program will earn them 10 % over the years. How much do they have to deposit for a lump sum?
Donkey Company manufactures two products, Standard and DeLuxe. Donkey's overhead costs consist of machining, $2,000,000; and assembling, $1,000,000. Information on the two products is:
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