Assignment 2: Constructive Dividends, Redemptions, and Related Party
Due Week 4 and worth 200 points
Suppose you are a CPA hired to represent a client that is currently under
examination by the IRS. The client is the president and 95% shareholder of a
building supply sales and warehousing business. He also owns 50% of the stock of
a construction company. The remaining 50% of the stock of the construction
company is owned by the clientâs 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 $5 million base salary plus 5% of gross receipts not to exceed $5
million. The total gross receipts of the building supply business are $300
million. The NPA by the IRS disallows the salary based on 5% of gross receipts
as a constructive dividend
Stock redemptions: During the audit period, the construction company
redeemed 50% of the outstanding stock owned by the client and 50% of the stock
owned by the clientâs son, leaving each with the same ownership percentage of
50%. The redemption was treated as a distribution under Section 301 of the IRC
by the IRS.
Rental loss: The rental loss results from a building leased to the
construction company owned by the 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 to use the six (6) step tax research process
in Chapter 1 and demonstrated in Appendix A of your textbook as a guide for your
Write a three to four (3-4) page paper in which you:
Based on your research and the facts stated in the scenario, prepare a
recommendation for the client in which you advise either acceptance of the
proposed adjustments or further appeal of the issue based on the potential for
prevailing on appeal.
Create a tax plan for the future redemption of the clientâs stock owned in
the construction company that will not be taxed according to Section 301 of the
Propose a strategy for the client to receive similar amounts in compensation
in the future and avoid the taxation as a constructive dividend.
Use the six (6) step tax research process, located in Chapter 1 and
demonstrated in Appendix A of the textbook, to record your research for
communications to the client.
Your assignment must follow these formatting requirements:
Be typed, double spaced, using Times New Roman font (size 12), with one-inch
margins on all sides; citations and references must follow APA or
school-specific format. Check with your professor for any additional
Include a cover page containing the title of the assignment, the studentâs
name, the professorâs name, the course title, and the date. The cover page and
the reference page are not included in the required assignment page
The specific course learning outcomes associated with this assignment
Analyze tax issues regarding corporate formations, capital structures,
income tax, non-liquidating distributions, or other corporate levies.
Prepare client, internal, and administrative documents that appropriately
convey the results of tax research and planning.
Create an approach to tax research that results in credible and current
Use technology and information resources to research issues in
organizational tax research and planning.
Write clearly and concisely about organizational tax research and planning
using proper writing mechanics.
Grading for this assignment will be based on answer quality, logic /
organization of the paper, and language and writing skills, using the following
rubric found .strayer.edu/bbcswebdav/institution/ACC/565/1138/Week4-1138/Week%204%20Assignment%202%20Grading%20Rubric.html”>here.
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.Read more
Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.Read more
Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.Read more
Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.Read more
By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.Read more