Amy, Beth, and Meg each own 100 of the 300 outstanding shares of Theta Corporation
stock. Amy wants to sell her shares, which have a $40,000 basis and a $100,000 FMV.
Either Beth and/or Meg can purchase Amy’s shares (50 shares each) or Theta can redeem
all of them. Theta has a $150,000 E&P balance.
Required: Write a memorandum comparing the tax consequences of the two options
to the three sisters, who actively manage Theta.
C:4-61 Maria Garcia is a CPA whose firm has prepared the tax returns of Stanley Corporation
for many years. A review of Stanley’s last three tax returns by a new staff accountant, who
has been assigned to the client for the first time, reveals that the corporation may be pay-ing excessive compensation to one of its key officers. The staff accountant feels that the
firm should inform the IRS and/or report the excess amount as a nondeductible dividend.
Although the facts are ambiguous, they tend to support the contention that the compensa-tion paid in current and prior years is reasonable.
Required: In a client letter, discuss Maria’s role as an advocate for Stanley, and discuss
the possible tax consequences resulting from a subsequent audit