Tax: Assess reasonable compensation
Not what you're looking for?
Whether compensation paid to a corporate employees is reasonable is a question of fact to be determined from the surrounding circumstances. How would the resolutions of this problem be affected by each of the following factors?
a. The employee owns no stock but is the mother in law of the sole shareholder.
b. The shareholder-employee does not have a college degree.
c. The shareholder-employer works 40 hours per week for another unrelated employer.
d. The shareholder-employee was underpaid for services during the formative period of the corporation.
e. The corporation has never paid dividend.
f. Year-end bonuses are paid to all employees, but officer-shareholders receive disproportionately larger bonuses.
Purchase this Solution
Solution Summary
The 424 word solution provides several sentences in response to each of the six problems presented.
Solution Preview
a. The employee owns no stock but is the mother in law of the sole shareholder.
Mother in law would probably prefer a dividend paid directly to her. The employee would rather have salary because it would be paid directly to him. Those are both motivations for actions, but neither explains whether the compensation is reasonable or not. We know the employee could take the paycheck and then give the money to his mother in law; that's a reportable gift. To characterize the amount compensation and negate the double taxation of dividends, the company better have some good records to justify compensation to the employee.
b. The shareholder-employee does not ...
Purchase this Solution
Free BrainMass Quizzes
Writing Business Plans
This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.
Business Ethics Awareness Strategy
This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.
Learning Lean
This quiz will help you understand the basic concepts of Lean.
Introduction to Finance
This quiz test introductory finance topics.
Change and Resistance within Organizations
This quiz intended to help students understand change and resistance in organizations