Tax Memorandum


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Essay #: 052398
Total text length is 5,107 characters (approximately 3.5 pages).

Excerpts from the Paper

The beginning:
 case is evaluated and compared to Elliot’s case. The author then gives an opinion on the different tax implications that will have to be faced by the organization. 
The document is in the format of a memo, the first part of which describes the issues and challenges faced by the organization. The next section gives the author’s opinion based on tax regulations.
TO: Director
RE: TAX MEMO #2 Executive Compensation
ISSUE: Mr. Kim is the sole shareholder and CEO of 
, Inc., a technology company valued at approximately $5,000,000. 
 is a C corporation for federal tax purposes. In 2007, 
 had net pretax profits, prior to deducting Kim's compensation, of $1,000,000....
The end:
.....etical shareholder, a bulk of the organization’s earnings are being paid out as compensation to the CEO, leaving very little as returns to the shareholders, once the CEO’s compensation is paid out. Therefore it is unreasonable and will be considered so, by the shareholders. 
Based on the facts that have been discussed above it is the author’s opinion that this contingent compensation paid out to Kim is unreasonable and if a fixed salary was paid out instead of the contingent salary or if a large component of the Kim’s salary consisted of a fixed salary instead of a contingent salary – then it could be considered as reasonable – not otherwise. 
, Inc. v. Commissioner 
IRC Sections 162 
Treasury Regulation Section 1.162-7