Beth is a very successful barber who has incorporated her business as a C Corporation. The corporation pays her an annual salary of $80,000. 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 Ray Bob’s bookstore, she took $3,000 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
3. In your answer, consider the impact on both Beth 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.
6. Note that you don’t have enough information to be able to know her marginal tax rate – you only know her salary, you do not know if she is married (and if so how much income her husband has) nor do you know her investment income, etc.

Answer rating: 100% (QA)

ANSWER Dear Isabel I hope you are well I am writing to you regarding a question about the tax treatm... View the full answer