Jacob is president, secretary, treasurer, sole director and sole shareholder of
ID: 2520564 • Letter: J
Question
Jacob is president, secretary, treasurer, sole director and sole shareholder of Amron, an S corporation accounting practice. He manages all aspects of the company's operations, and he is the only person working at the company that holds a CPA license. Jacob works 12-hour days and takes few days off. Corporate records indicate the following:
Jacob and his partner, Michael filed joint income tax returns, but they did not report any wages or salaries on their returns. During 2016, Jacob transferred $125,000 from Amron to his personal account. Jacob has hired an accountant this year to prepare his and Michael's personal tax returns as well as the corporate tax return for Amron Corporation. Prepare a memo to the file indicating the issues an accountant have identified based on the above fact pattern supporting your conclusion with proper tax authority.
Year Gross Receipt Net income 2014 $275,000 $120,000 2015 $305,000 $125,000 2016 $327,000 $153,000Explanation / Answer
Facts to be kept in mind are
Jacob is the sole shareholder of the company and sole director.
The fact that Jacob and Michael have filed joint income tax returns.
Now the accountant may have across issues such as
They have not reported any salary or wages in their return therefore the amount transferred $125,000 in 2016 has to be shown has drawing since its a proprietorship.
The amount of $125, 000 shall be taxble in the name of the firm only.
It is also advised that Jacob and Michael file separate tax returns
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