In this case, you will advise Quark, Inc. about its potential tax problems and about any solutions you may have to reduce tax liability.

Corporate Background $-$ Quark, Inc. is a calendar$-$year accrual$-$based C corporation.

Marvin Marshon owns $100\%$ of the Quark stock.

Quark manufactures aluminum casing for the lighting industry.

At the beginning of $2023,$ Quark had $$2$ million of accumulated earnings and profits.

Situation $-$ Quark's management has come to you and indicated that it has excess cash that Marvin wants to use personally.

Quark intends to loan $$500,000$ to Marvin by the end of $2023.$

Quark gave you interim $10/31/23$ financial statements. You have been able to determine that Quark will have $$500,000$ in working capital needs at the end of $2023.$

You are also aware that Quark needs equipment that will cost in the range of $$275,000$ to $$325,000$ but it has no current purchase orders or other arrangements.

Additional Information

Its interim balance sheet shows $$300,000$ in current assets $($other than inventories$)$ of cash and marketable securities held for investment.

Quark has not paid dividends yet this year or last year.

Quark projects its taxable income to be $$1,000,000($not counting deductions for any equipment purchases$).$

The taxable income amount includes a deduction for Marvin's salary of $$200,000.$

Special Considerations

Assume that there will be no charitable contribution, capital gain$/$loss or net operating losses $($or any carrybacks or carryovers$).$

Also, ignore the dividends received deduction.

Required:

Advise Quark about its potential tax problems and about any solutions you may have to reduce its tax liability $($provide detail on your solutions$).$ This problem does not contain enough information to compile financial projections. But include an estimate of Quark$$s accumulated taxable income both before and after your recommendations.