Scenario:Your client, Bob, is the CEO of a corporation that has 12 stockholders who are alsothe only employees of the business. The corporation operates a boat dealershipin Sherman, Texas. The corporation has accumulated earnings and profits of$3,000,000, not including the current year’s taxable income, which is expectedto be $800,000. No dividends have been paid to stockholders. Bob has been verypleased with the corporation’s performance and he wants to reward thestockholders.A. Bob is considering paying cash dividends of $10,000 per share or giving eachemployee a new boat that costs $10,000 and retails for $15,000. B. In addition, when talking with Bob, you found that he has a corporate planethat he regularly uses for vacation and that he allows other corporate officersto use for vacation.Should Bob consider paying a large year-end bonus to each employee instead ofdeclaring dividends? Why or why not? Is there a tax issue that Bob needs toconsider when loaning the corporate plane to stockholders for vacations? Whatactions can Bob take to minimize corporate tax while also providing rewards forstockholders?
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