Shareholders of Closely Held C Corporations Frequently Engage in Transactions

question 93

Essay

Shareholders of closely held C corporations frequently engage in transactions that produce a tax benefit to the corporations. In many cases, shareholders receive compensation for employment with closely held corporations, and such payments generate a deduction for the corporations. To avoid the double taxation effect, shareholders generally prefer these and other corporate deductible payments over dividend distributions. Explain how this strategy avoids double taxation, including examples of other shareholder-corporation transactions that could be used for such purpose. Also, discuss the possible pitfalls surrounding corporate payments to shareholders.

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Definitions:

Hypothalamus

A region of the brain below the thalamus, coordinating both the autonomic nervous system and the activity of the pituitary, controlling body temperature, thirst, hunger, and other homeostatic systems, and involved in sleep and emotional activity.

Context-dependent Memory

Information that is better retrieved in the context in which it was encoded and stored, or learned.

Saccadic Eye Movements

Quick, simultaneous movements of both eyes between two or more phases of fixation in the same direction.