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ACC 565 Week 4 Assignment 2 Constructive Dividends,
Redemptions, and Related Party Losses (2 Papers)
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This paper of ACC 565 Week 4 Assignment 2
Assignment 2 : Constructive Dividends, Redemptions, and Related
Party Losses
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 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 $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