Your client, Bob, is the CEO of a corporation that has 12 stockholders who are also
the only employees of the business. The corporation operates a boat dealership
in Sherman, Texas. The corporation has accumulated earnings and profits of
$3,000,000, not including the current year?s taxable income, which is expected
to be $800,000. No dividends have been paid to stockholders. Bob has been very
pleased with the corporation?s performance and he wants to reward the
A. Bob is considering paying cash dividends of $10,000 per share or giving each
employee 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 plane
that he regularly uses for vacation and that he allows other corporate officers
to use for vacation.
Should Bob consider paying a large year-end bonus to each employee instead of
declaring dividends? Why or why not? Is there a tax issue that Bob needs to
consider when loaning the corporate plane to stockholders for vacations? What
actions can Bob take to minimize corporate tax while also providing rewards for