Isabel is a very successful locksmith who has incorporated her business as a C Corporation. The corporation pays her an annual salary of $80,000 (which is deemed to be reasonable). She is very pleased to have the limited liability of the corporate form to protect her business.

One night on the way to her regular Friday night poker game in the back of Billy Joe Ray Bobs bookstore, she took $2,000 from the cash register thinking that it was her money. You remember BJRB (he is engaged to be married to Hannah his second cousin).

Write a memo to Isabel in simple English (i.e. avoiding tax jargon as much as it is possible), covering the following points:

1. Why it is not her money.
2. The possible tax treatments of the transaction (do not consider the possibility that she is a thief issues such as these are better left to lawyers not accountants). I can see at least three possibilities; you might come up with more.
3. In your answer, consider the impact on both Isabel and the corporation.
4. Your recommendation as to which is the best tax treatment (considering both parties) and why.
5. Assume that the year is 2020.