Problem 2 Two officers of Corporation B disguised dividends as commissions and t

Question

Problem 2

Two officers of Corporation B disguised dividends as commissions and thus lowered the income tax on Corporation B’s corporate income tax return. Their objective was to reduce the possibility that of governmental regulation for having “windfall profits”; although their intent was not to evade taxes, they were aware that characterizing dividends as “commissions” would reduce taxable income. Officer 1 changed the accounting records so that the dividends were reclassified as commissions and took the records to the tax preparer. Officer 2 did nothing except encourage Officer 1 to do what he did. Can Officer 2 be charged with any wrongdoing since he didn’t commit an overt act?

Required: For the above situation, provide the code sections under Title 26 and Title 18 that you believe are applicable and give brief reasons for each charge you recommend. If you believe a section is appropriate but do not believe the taxpayer is likely to be found guilty under that section, please briefly state the reason(s) you believe the taxpayer is unlikely to be found guilty. (Please avoid using a “scattergun” approach, i.e., listing sections in hopes that they will “stick”.)

Explanation / Answer

egal entity, chartered by a U.S. state or by the federal government, and separate and distinct from the persons who own it, giving rise to a jurist’s remark that it has “neither a soul to damn nor a body to kick.” Nonetheless, it is regarded by the courts as an artificial person; it may own property, incur debts, sue, or be sued. It has three chief distinguishing features: 1. limited liability; owners can lose only what they invest. 2. easy transfer of ownership through the sale of shares of stock. 3. continuity of existence. Other factors helping to explain the popularity of the corporate form of organization are its ability to obtain capital through expanded ownership, and the shareholders’ ability to profit from the growth of the business.

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