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Federal Tax 655

3-1 Small Group Discussion: Deductibility

In this activity, your instructor will assign you to a group with four of your peers. Each of you will research the possible tax consequences of each of the alternative rewards that Bob is considering and you will report your findings back to your group.

Your client, Bob, is the CEO of a cooperation that has 12 stockholders who are also the only employees of the business. The Cooperation operates a boat dealership in Sherman, Texas. The cooperation has accumulated earnings and profits of $3,000,000, not including the current year's taxable income, which is expected to be $8,00,000. No dividend has been paid to stockholders. Bob has been very please withy the corporation's performance and he wants to reward the stockholders.

Bob is considering paying cash dividends of $ 10,000 per share and giving each employee a new boat that costs $10,000 and retails for $ 15,000

Inaddition, when talking to Bob, you found that he has a corporate plane that he regularly uses for vacation and that he allows other corporate offiicers to use for vacation.

Should bob consider paying a large year-end bonus to each employee instead of declaring dividends? Why are why not? Is there a tax issue that Bob needs to consider when loaning to corporate plane to stockholders for vacations? What actions can Bob take to minimize corporte tax while also providing rewards for stockholders?

Once everyone in the group reported on possible tax consequences, build on one another's ideals until, as a group, you have fully fleshed out the advantages and disadvantages of each appoach to Bob's situation.

Support your post with scholarly sources.

Use the above link to assess the group pages for this activity.

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