discussion post 676

3-1 Discussion: S Corporation Status Situation Discussion Topic

Task: Reply to this topic


Starts Aug 24, 2019 11:59 PM

In

this discussion, you are faced with a situation involving a shareholder

threatening to take action that will result in a loss of S corporation

status. You must determine an appropriate response.

Electing to

be taxed as an S corporation can have many benefits. However, a

corporation must continuously meet requirements to qualify for such

status. Failure to meet these requirements, at any time, can result in

the loss of S corporation status and costly consequences.

For

this discussion, first read the textbook assignment for this module.

Then, referring to your knowledge of tax regulation and the ethical

considerations associated with the situation, develop an appropriate

strategy for responding to the situation.

Scenarios
Burt

is the custodian at Quaker Inn, an S corporation that has paid him

bonuses over the years in the form of shares in the corporation. Burt

now holds 276 shares in Quaker Inn.

While listening to a

television debate about a national health care plan, Burt decides that

the company’s health coverage is unfair. He is concerned about this

because his wife, Dora, is seriously ill.

During the second week

of December, Burt informs Quaker’s president that he would like a

Christmas bonus of $75,000 cash, or else he will sell 10 shares of his

stock to one of his relatives, a nonresident alien. The resulting loss

of the S election would trigger about $135,000 in federal corporate

income taxes for the current year alone. How should Quaker Inn’s

management respond to Burt’s threat? From Burt’s point of view, do you

see any unintended consequences if he follows through on his threat?

 

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