The client, who owns 95% of a building supply business and 50% of a construction company, received a Notice of Proposed Adjustments from the IRS regarding three issues - unreasonable compensation, stock redemptions, and a rental loss. For unreasonable compensation, the IRS disallowed the client's $10 million salary, which included a $5 million base and an additional 5% of $300 million in gross receipts. For stock redemptions, the IRS treated redemptions of 50% of stock from the client and his son as dividends. The rental loss was from a building leased to the construction company. The assistant must research the relevant tax laws, advise on accepting or appealing the adjustments, propose a legal stock
Mattingly "AI & Prompt Design: The Basics of Prompt Design"
Suppose you are a CPA hired to represent a client that is currently .docx
1. 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 client’s son owns the remaining 50%
of the stock of the construction company. 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 client’s son, leaving
each with the same ownership percentage of 50%. The IRS
treated the redemption as a distribution under Section 301 of the
IRC.
Rental loss: The rental loss results from a building leased to the
construction company owned by the client and his son.
Use the Internet 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 written
response.
Write a four (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
2. of the issue based on the potential for prevailing on appeal.
Create a tax plan for the future redemption of the client’s stock
owned in the construction company that will not be taxed
according to Section 301 of the IRC.
Propose a strategy for the client to receive similar amounts in
compensation in the future and avoid the taxation as a
constructive dividend.
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 format.
The cover page and the reference page are not included in the
required assignment page length.
You do not have to give me a cover page , REFERENCE PAGE
IS NEEDED!!!
PLEASE NO COPY AND PASTE,, ORIGINAL WORK
PLEASE!!!