Martin Martindale, the 40-year-old founder and President of Martindale Corporation (an accrual-basis calendar-year C corporation), owns 60 percent of the stock and receives a salary of $600,000. Four unrelated shareholders own the rest of the stock equally. The corporation has paid dividends regularly to the shareholders and plans to continue to do so in the future. Martin plans to recommend that the board of directors authorize the payment of a bonus to himself and two other employees (all cash-basis calendar-year individuals). The first employee is the vice president, who owns 10 percent of the corporation and receives a salary of $400,000. The other employee is the controller, who is not currently a shareholder in the corporation and receives a salary of $200,000. Martin would like the bonus to equal 75 percent of each recipient’s current salary. Martin believes that the annual salaries are probably a little high when compared to the corporation’s competitors. Martin asks you, as the corporation’s tax advisor, to recommend what the corporation needs to do so that it gets a deduction for the planned bonuses. Martin would prefer to pay the bonuses next year but have the business deduct them this year.

a. Locate and read Mayson Manufacturing Co., 178 F.2d 115, 38 AFTR 1028, 49-2 USTC ¶9467 and then summarize the important points of this case as it relates to Martindale.

b. Prepare a summary of the relevant Code and regulation sections as they apply to Martindale.

c. Prepare a one-paragraph summary for Martin on what the corporation needs to do to qualify for a deduction for the planned bonuses.



Source link

Leave a Reply

Your email address will not be published. Required fields are marked *