ACC 565 Course Great Wisdom / tutorialrank.com ACC 565 Course Great Wisdom / tutorialrank.com | Page 12

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 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.
Write a three page paper in which you:
1. 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.
2. 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.
3. Propose a strategy for the client to receive similar amounts in
compensation in the future and avoid the taxation as a constructive
dividend.
4. Use the six (6) step tax research process to record your research for
communications to the client.
Use the Internet and 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.
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