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 authorize the payment of 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 payments.a. What additional questions should you ask Sue before you begin your research?
b. Can you think of any other potential sources of information that you might want to consider?
c. In addition to asking Sue questions, how else might you discover some of the pertinent facts?
d. Which of the preceding facts are relevant? Which are irrelevant?
e. Is it likely that you will need to ask more questions at a later point? Why or why not?
f. What is the first question you will try to answer in your research? When you discover that in order for a bonus to be deductible, the employee's salary plus bonus must be considered "reasonable?" In addition, you learn from your client that the company is an accrual basis taxpayer. How does your initial question change?
g. What is the taxpayer's desired result? Why is this important? How does it affect your role as tax advisor?
h. Is this a planning research type of situation? How do you know?
i. Sue tells you that she is considering paying a $100 bonus to each employee. Does
this affect the tax research?
j. Is it part of your responsibility to decide how much the bonuses should be? Why or why not?