Can you help me find errors in each number???
1. Painting expenses. Painte Me Contractors painted the exteriors of 4 Michigan stores ($100,000 for all), the headquarters building ($18,000), and a rental property J owns ($10,000).
The IRS disallowed $128,000 and treating it all as a constructive dividend.
2. Real Estate Taxes. WBW paid the property taxes on the headquarters as required under the lease. The IRS disallowed all $35,000, treating it all as a constructive dividend.
3. Charter Jet Expenses. WBW uses a private jet for travel. J makes quarterly trips to the Henderson office. On all 4 trips friends and family travelled with him. They did whatever and he worked. He did play a round of golf, had a few dinners with family and friends, and attended one show each visit. The cost of each trip was $7,500. All 30,000 disallowed and treated as a constructive dividend
4. Disallowance of bonus. WDW paid J a bonus of $11,000,000 following the formula. Prior year bonuses: 4,500,000 in 2015, 0 in 2014, and 2,600,000 in 2013. 2017's bonus was 6,500,000. WDW presented numerous studies that J's salary has been 200,000-250,000 below the industry average for similar sized businesses since 2010.
All 11,000,000 was disallowed and charged as a constructive dividend.
5. Disallowance of Interest. J loaned WDW $1,000,000. The note calls for interest only payments. It bears interest at 3.5% (1% above the AFR at date of issuance). Prime rates were 7% in 2016, 5.75% in 2015, 5.5% in 2014, and 6.1% in 2017. Do not worry about the 7872 rules. The IRS imposed a constructive dividend of $35,000 the difference between the paid interest and the prime interest.
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