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ACC565 Week 4 Assignment 2 Discussion 1 and Discussion 2




Question;Discussion 1"Corporate Liquidations" Please respond to;the following;From the e-Activity, evaluate the appropriateness of;the techniques used and the common issues pursued by the IRS in corporate;liquidations and dissolutions. Create an argument to defend the client if the;IRS pursues the assignment of income doctrine or the clear reflection of income;doctrine on a cash-basis corporation, as reflected in the Examining Officers;Guide (EOG).;Outline a plan of liquidation for a client that;liquidates two (2) years after incorporation by transferring loss property;under IRC Section 351. The plan of liquidation should be defensible against the;IRS in an audit that challenges the plan as having a tax-avoidance purpose.;Analyze the consequences in an IRS audit of a subsequent reincorporation after;a corporate liquidation and recognition of losses.Discussion 2"Taxable Acquisition Transactions and;Nontaxable Reorganizations" Please respond to the following:IRC Section 338 allows a deemed sale election;generating immediate taxation to the target corporation and a stepped-up or;stepped-down basis to the price paid by the acquiring corporation for the;target corporation stock plus liabilities on the deemed sale. Examine at least;one (1) benefit of a Section IRC 338 liquidation election for a target corporation.;Create a situation which demonstrates a favorable Section IRC 338 liquidation;election for a target corporation.;Identify one (1) consequence of a nontaxable;reorganization, and offer an alternative to eliminate the negative effect of;the identified consequence.Week 4 Assignment 2Assignment 2:Constructive Dividends, Redemptions, and Related;Party LossesSuppose you are a CPA hired to represent a client that is currently;under examination by the IRS. The client is the president and 95% shareholder;of a building supply sales and warehousing business. He also owns 50% of the;stock of a construction company. The remaining 50% of the stock of the;construction company is owned by the client?s son. The client has received a;Notice of Proposed Adjustments (NPA) on three (3) significant issues related to;the building supply business for the years under examination. The issues;identified in the NPA are unreasonable compensation, stock redemptions, and a;rental loss. Additional facts regarding the issues are reflected below:?;Unreasonable compensation: The;taxpayer receives a salary of $10 million composed of a $5 million base salary;plus 5% of gross receipts not to exceed $5 million. The total gross receipts of;the building supply business are $300 million. The NPA by the IRS 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.="msonormal">="msonormal">="msonormal">


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