Double tax of dividends.

In reading William McNairn's letter "Double taxation of dividends?" (California CPA, December 2004), I feel that he is ignoring the substance over form in what he calls a "figment of conventional wisdom."

Sure, it's easy to say that a corporation and a shareholder are established in law as different taxable entities, but let's be realistic. If a person owns a C corporation that had net income at the end of the year that eventually gets distributed, that income would be double taxed.

Mr. McNairn uses the example of a person paying after-tax dollars to a plumber who also gets taxed on the same income that he is getting paid. This reflects two different people with each one only getting taxed once.

In the example where an employee is also a C corporation's shareholder, I feel that this is truly a double tax on the same income. Yes, it is two different entities (an individual and a corporation), but it's coming from the same pocket.

I don't think it is coincidence that many accounting textbooks list double taxation on net income as one of a C corporation's cons when deciding what type of entity to use. This has been greatly alleviated with the qualified dividend rate now at 15 percent, but I feel that in substance there was and still is a double tax in effect.

DARRELL YIP

Rigney Friedman Business Management Co.

Los Angeles