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Section 8.1.1 (1) Take the rst construct in the grid. (2) Ask the interviewee which pole s/he prefers. (3) Ask the interviewee to describe the basis for this preference. (4) Note the answer immediately above the preferred pole of the original construct, as a new construct. (5) Identify the contrasting pole of that new construct. (6) Note it, above the implicit (non-preferred) pole of the original construct. (7) Repeat steps 2 to 6 for this new superordinate construct. (8) Repeat step 7 until the interviewee can t go any further. (9) Take the next construct in the original grid; repeat steps 2 to 8 for it. (10) Do step 9 for each of the remaining constructs in the original grid.
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This election is recommended in a number of circumstances. One example is the corporation that expects to incur losses, at least in its start-up phase. In the absence of a subchapter S election, such losses would simply collect at the corporate level, awaiting a time in the future when they could be carried forward to offset future profits (should there ever be any). If the election is made, the losses would pass through to the stockholders in the current year and might offset other income of these stockholders such as interest, dividends from investments, and salaries. Another such circumstance is when a corporation expects to sell substantially all its assets sometime in the future in an acquisition transaction. Since the repeal of the so-called General Utilities doctrine, such a corporation would incur a substantial capital gain tax on the growth in the value of its assets from their acquisition to the time of sale, in addition to the capital gain tax incurred by its stockholders when the proceeds of such sale are distributed to them. The subchapter S election (if made early enough), again eliminates tax at the corporate level, leaving only the tax on the stockholders. The circumstance most relevant to Morris is the corporation with too much profit to distribute as reasonable salary and bonuses. Instead of fighting the battle of reasonableness with the IRS, Morris could elect subchapter S status, thus rendering the controversy moot. It will not matter that the amount paid to him is too large to be anything but a nondeductible dividend, because it is no longer necessary to be concerned about the corporation s ability to deduct the expense. Not all corporations are eligible to elect subchapter S status. However, contrary to a common misconception, eligibility has nothing to do with being a small business. In simplified form, to qualify for a subchapter S election, the corporation must have 75 or fewer stockholders holding only one class of stock, all of whom must be individuals who are either U.S. citizens or resident aliens. Plant Supply qualifies on all these counts. Alternatively, many companies have accomplished the same tax results, while avoiding the eligibility limitations of subchapter S, by operating as limited liability companies (LLCs). Unfortunately for Morris, however, a few states require LLCs to have more than one owner. Under subchapter S, Morris can pay himself and Lisa a reasonable salary and then take the rest of the money either as salary or dividend without fear of challenge. He can then distribute that additional money between Lisa and Victor, to support their individual lifestyles. Thus, it appears that the effective use of a strategic taxation tool has solved an otherwise costly problem.
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The Terrorist as Exception
Figure 16.2 Model of the HR rm performance relationship. Reproduced by permission from Becker et al. (1997)
$ million 2005 2006 4,386 4,307 4,649 1,252 (72) (1,173) 8,963 4,386
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