Question

Jonathan (an individual) owns 100% of the stock of Husky, Inc. (a C corporation) and 100% of the stock of Calhoun, Inc. (another C Corporation). Calhoun, Inc. is very successful and has millions in earnings and profits. Husky has not fared so well and has no earnings and profits. In the current year, Husky ran out of cash and could not make its payroll. Because of this situation, Jonathan directed Calhoun, Inc. to pay $100,000 in wages to employees of Husky. The $100,000 payment was not structured as a loan.
A. How should Calhoun, Inc. treat the $100,000 payment for tax purposes?
B. How should Jonathan treat the $100,000 payment for tax purposes?

Answer 1

Answer: A. As Expenses

B. No treatment.

Explanation:

A. The $100,000 was not structured and a loan so it will be accounted for as EXPENSES. This means that it will be deducted from the Income for the year from Calhoun's books.

B. A C Corporation is by definition taxed SEPARATELY from it's owners in the United States of America. Seeing as both Corporations were C Corporations, Jonathan as the owner of both companies need not worry about how he should treat the $100,000 payment as he will not ne taxed on it.