Which of the following would not be a successful means of avoiding double tax on the earnings of a closely-held corporation?
A) Having a shareholder lend money to the corporation at a reasonable rate of interest.
B) Having a shareholder lease warehouse space to the corporation at a reasonable rental rate.
C) Having the corporation pay the shareholder a fixed percentage of the par value of the stock the shareholder owns.
D) Having the corporation employ the shareholder at a reasonable compensation.

Question

Quizplus · Accepted Answer

The payment of a fixed percentage of the par value of the stock the shareholder owns would be considered a dividend, which is subject to double taxation. The other options (A, B, and D) involve legitimate business transactions between the closely-held corporation and its shareholders, which may reduce the corporation's taxable income and avoid double taxation.

Which of the Following Would Not Be a Successful Means