Irene operates an ice cream store called Ice Queen Irene’s Ice Cream Dream, Incorporated. Irene is the sole owner and shareholder. The company has been in operation for a few years now, so much that Irene has been able to hire employees and pay herself a salary of $150, 000 per year for being the President, CEO and Operations Manager of the company. From sourcing more affordable products, to keeping up to date with the industries latest gadgets for efficiency, Irene is a stickler for the bottom line and is always looking for ways to save money while not sacrificing the quality of her ice cream.
When Irene started her business, she didn’t seek the advice of an attorney nor CPA. Instead, she went to Instantbusinesslawyer.com to handle all of her business formation paperwork. She did not understand the differences between the various entity types, but decided on created a C Corporation because she thought it sounded the most official.
In her efforts to streamline costs, she has been going through the books of her business. One thing she noticed is that it appears she is being taxed two times on the money the company makes. When she called the IRS to give them a piece of her mind for this mistake, the IRS informed her that there was no mistake and told her to speak with a tax professional.
Irene comes into your office seeking help in coming up with creative ways to evade taxes. She tells you one idea of hers to evade taxes is to encourage cash payments from customers because, she says, “Then I can just pocket that money like it never happened and the IRS wouldn’t be the wiser!” Also, because business is going well, she plans to give herself a raise and bring her total salary up to $400,000. She read an article online that said this is a good way to get rid of that mysterious double tax. She’s also still very confused as to why the “IRS is double dipping its greedy hands into her wallet and taxing her twice,” and wants that to stop.
Identify any tax issues that arise through Irene’s situation. Also identify any relevant section of the Code, case law, or tax court memorandums that will help you resolve these issues.