Recent orders
Letter, constructive dividend to flamingo corporation
To: Flamingo Corporation
Date: 14/07/2013
Re: constructive dividend
IRS considers the transfer of large amounts of money to shareholders as constructive dividend and is a violation of the tax code. This means that it is up for penalties.
Money even if allocated to the person by the firm it is supposed to be taxed at the corporate level and then at the shareholders level as dividend. Penalties will be at the corporate level and at the shareholder’s level. in our case the penalty was the deductions for both John and Kenny.
In the court case of Welle v. Commissioner, it was determined that no constructive dividend occurred because the corporation was wholly owned by one person, however in our case it is owned by two people and controlled by a board made up of three people. if the allocation of the money to the share holders leads to a substantial reduction in the profits earned by the corporation, then under section 316(a), it is a constructive dividend. This is because it then becomes a form of distribution of the corporate assets and cash balances.
The treasury regulation section 1.482-1 states that even in controlled situations, any distribution of resources that tampers with the profits gained by a corporation is termed as constructive dividend. Even though in this case it was controlled because there was a clause enacted prior to the distribution of the money to the shareholders, it still qualifies as constructive dividends.
When a case is proofed to be a constructive dividend, then the gross income earned by the corporation and the shareholders will have increased tax based on what was constructed for the individual by the corporation. John will experience increased tax on his dividend share while Kenny will experience increased taxes on his pension. The corporation will also experience increased tax rate until the penalty amount is cleared.
References
Well v. Commissioner, 2009, Constructive Dividend Case A Mystery,
Treasury Regulation Section 1.482-1, 1.282-9, 316(a),
http://www.ustaxcourt.gov/InOpHistoric/graves.TCM.WPD.pdf
Principal – Agent Problem
Principal – Agent Problem
This paper describes how principal agent; factors into production and profitability and also explores the merits and demerits of running one’s own company or hiring employees ADDIN CSL_CITATION { “citationItems” : [ { “id” : “ITEM-1”, “itemData” : { “author” : [ { “dropping-particle” : “”, “family” : “Grossman”, “given” : “Sanford J”, “non-dropping-particle” : “”, “parse-names” : false, “suffix” : “” }, { “dropping-particle” : “”, “family” : “Hart”, “given” : “Oliver D”, “non-dropping-particle” : “”, “parse-names” : false, “suffix” : “” } ], “id” : “ITEM-1”, “issue” : “1”, “issued” : { “date-parts” : [ [ “2010” ] ] }, “page” : “7-45”, “title” : “An Analysis of the Principal-Agent Problem Published by : The Econometric Society Stable URL : http://www.jstor.org/stable/1912246”, “type” : “article-journal”, “volume” : “51” }, “uris” : [ “http://www.mendeley.com/documents/?uuid=86e45cf0-356a-4718-8924-737dc821a3e1” ] } ], “mendeley” : { “previouslyFormattedCitation” : “(Grossman & Hart, 2010)” }, “properties” : { “noteIndex” : 0 }, “schema” : “https://github.com/citation-style-language/schema/raw/master/csl-citation.json” }(Grossman & Hart, 2010). There exist many formal business settings whereby one economic actor – the principal, delegates authority to an agent to act on his or her behalf. The main reason for doing so is because he believes that the agent has the required skills and expertise or information in which, the informational advantage or the information asymmetry, is an eminent problem for the principal ADDIN CSL_CITATION { “citationItems” : [ { “id” : “ITEM-1”, “itemData” : { “author” : [ { “dropping-particle” : “”, “family” : “Miller”, “given” : “Gary J”, “non-dropping-particle” : “”, “parse-names” : false, “suffix” : “” } ], “id” : “ITEM-1”, “issued” : { “date-parts” : [ [ “2005” ] ] }, “page” : “349-370”, “title” : “14 . Solutions to Principal-Agent Problems in Firms”, “type” : “article-journal” }, “uris” : [ “http://www.mendeley.com/documents/?uuid=01b3ae85-8c7e-4824-a2e3-bd4bee2638ef” ] } ], “mendeley” : { “previouslyFormattedCitation” : “(Miller, 2005)” }, “properties” : { “noteIndex” : 0 }, “schema” : “https://github.com/citation-style-language/schema/raw/master/csl-citation.json” }(Miller, 2005).
Having owned a Dental care (agent), a patient (principal) prescribed for an expensive original drug considers the drugs to be expensive and of profit beneficial to the dentist. In this case, the patient cannot guarantee that the dentist is acting in the patients best interests especially when the drugs needed are useful to the patient and are expensive to the dentist; where the services given by the dentist are expensive for the patient to observe. The agent and the principal have different interest and asymmetric information. The problem arises mostly in cases where one party gets paid by another do something for them. Moral hazard issues and Conflicts of interest arise when the principal (patient) feels exploited by the agent and he might choose to withdraw from making any transaction, comparing the deal would have to be in both parties interest. This involves changing the rules so that the self-interested balanced choices of the agent agree with those of the principal desires.
Several mechanisms can be used to align the interests of the principal with those of the agent. In employment, employers (principal) may use performance measurement, profit sharing, commissions, efficiency wages and piece rates the agents posing a threat of termination of employment ADDIN CSL_CITATION { “citationItems” : [ { “id” : “ITEM-1”, “itemData” : { “author” : [ { “dropping-particle” : “”, “family” : “Miller”, “given” : “Gary J”, “non-dropping-particle” : “”, “parse-names” : false, “suffix” : “” } ], “id” : “ITEM-1”, “issued” : { “date-parts” : [ [ “2005” ] ] }, “page” : “349-370”, “title” : “14 . Solutions to Principal-Agent Problems in Firms”, “type” : “article-journal” }, “uris” : [ “http://www.mendeley.com/documents/?uuid=01b3ae85-8c7e-4824-a2e3-bd4bee2638ef” ] } ], “mendeley” : { “previouslyFormattedCitation” : “(Miller, 2005)” }, “properties” : { “noteIndex” : 0 }, “schema” : “https://github.com/citation-style-language/schema/raw/master/csl-citation.json” }(Miller, 2005). The primary motivation of the workers comes through holding a partial stake in the company’s performance; profit sharing in consideration leads to desirable outcomes, which ultimately increase the firm’s productivity
A recent research has shown that employee ownership promotes employees’ commitment to the firm. This in turn improves the ability of the company to execute several varieties of key strategic activities for instance, product development, market expansion and sale which results in profitability. Economists identified that investment in human capital is an important contributor to firm performance, though this usually undertaken with preset specific strategic objectives in mind. Human capital links to contribution to the common stock of skills and knowledge which benefits the entire a nation’s economy ADDIN CSL_CITATION { “citationItems” : [ { “id” : “ITEM-1”, “itemData” : { “author” : [ { “dropping-particle” : “”, “family” : “Ownership”, “given” : “T H E Employee”, “non-dropping-particle” : “”, “parse-names” : false, “suffix” : “” } ], “id” : “ITEM-1”, “issue” : “July”, “issued” : { “date-parts” : [ [ “2012” ] ] }, “title” : “Benefits and consequences”, “type” : “article-journal” }, “uris” : [ “http://www.mendeley.com/documents/?uuid=a378129c-fe86-4259-b04d-6fe630a380c9” ] } ], “mendeley” : { “previouslyFormattedCitation” : “(Ownership, 2012)” }, “properties” : { “noteIndex” : 0 }, “schema” : “https://github.com/citation-style-language/schema/raw/master/csl-citation.json” }(Ownership, 2012). In cases when the staff understands the operations and owns the production or service, workers in many occasions could fail to see the overall business plan and objectives of the firm as viewed by the owner. The workers themselves may not agree on the direction for the company, or the employees could fail to understand the reason as to why the owners may refuse to inject more funds into the business operation. Hence, the workers who command power daily thinks the owner proposes less practical contribution, with the notion that they understand the company’s operations precisely.
In summary, the principal owner of a business cannot posses all the expertise required in the daily operations of the company, and hence there comes a need to out-source expertise. Both the employee and employer depend on each other, though the stake in the business might differ significantly (Seba, Allen & Fraser, 2010).
References
ADDIN Mendeley Bibliography CSL_BIBLIOGRAPHY Grossman, S. J., & Hart, O. D. (2010). An Analysis of the Principal-Agent Problem Published by: The Econometric Society Stable URLs : http://www.jstor.org/stable/1912246, 51(1), 7–45.
Miller, G. J. (2005). 14. Solutions to Principal-Agent Problems in Firms, 349–370.
Ownership, T. H. E. E. (2012). Benefits and consequences, (July).
Seba, R. D., Allen, F. H., & Fraser, A. (2010). Economics of Worldwide Petroleum Production. USA: OCGI Publications,
TO All Staff
TO: All Staff
FROM: Director of Communication
CC: Human Resource Manager, Chiefs Executive Officer, and the Finance Manager of Acme Petroleum
DATE: October 11, 2022
SUBJECT: Stargazing Cohesive Public Relation Response on Purchasing a Proposed Tank
As a communication director, I would like to notify all the staffs that we will be having our meeting tomorrow evening. The management has opted to purchase the land along Route 59 South of Victoria to build the multiple oil terminals Tank. We would like to involve all the staff in decision-making towards building a central location tank.
Our involvement of the staff from the operation sectors gets based on improving the service deliveries through the use of a variety of machines. Also, the finance departments have drafted a financial expenditure budget which will be provided for the discussion. The company has embraced the idea of creating a human resource base organization which will involve intensification on the use of the new machines in communication, transportation, and accelerating and expansion of sales.
Improving the production and service delivery to our customers remains our initiative. As such, the company respects your views, objections, and corrections. Therefore, we welcome everyone to fully participate in our urgent meeting.
Thank you for your cooperation.
Communications Director, Acme Petroleum.