Sue is 30 years old and is president and a 51% shareholder of C Corporation. She informs you that C Corporation has ten shareholders, all unrelated. Other than herself, no shareholder owns more than 10% of the company's stock. Sue plans to recommend to the board of directors that it pay a bonus to her and three other top employees. She asks you, as the company's tax advisor, to counsel her on what the company needs to do so that the company can get a deduction for the planned bonus payments.
After further discussions with Sue, you learn that the company's business is commercial real estate development. The company had net revenues last year totaling $10,000,000. The company is an accrual basis taxpayer, and each of the intended recipients are cash basis. She would like the bonuses to actually be paid next year but deducted by the company this year. One of the intended recipients is Sue's executive assistant who is not currently a shareholder in the company. Sue would like the bonus to equal 100% of each recipient's current salary. The current salaries of the intended recipients are as follows:
President ..................................$500,000
Executive Assistant .....................$ 100,000
Chief Financial Officer ...................$300,000
Vice President of Operations ...........$250,000
The CFO and Vice President of Operations are shareholders in the company, each owning 10% of the stock.
Sue had indicated to you that she believes the annual salaries are comparable or a little on the high side compared to her company's competitors. You also learn that the company regularly pays out dividends and plans to continue to do so.
Your supervisor said she is aware of a case named Mayson Manufacturing that may provide some help. (Read any additional cases that the Mayson case leads you to.)
a. Does the case address the research question(s)?
b. As a result of studying the case, do you believe there are additional facts you should seek?
c. Are there questions remaining that require further research?