Question

10. MC.06.067 Paula is the sole shareholder of Violet, Inc. For 2019, she receives from Violet a salary of $300,000 and dividends of $100,000. Violet's taxable income for 2019 is $500,000. On audit, the IRS treats $100,000 of Paula's salary as unreasonable. Which of the following statements is correct? a. Paula's gross income will decrease by $100,000 as a result of the IRS adjustment. Ob Violet's taxable income will decrease by $100,000 as a result of the IRS adjustment. c. Violet's taxable income will not be affected by the IRS adjustment. d. Paula's gross income will increase by $100,000 as a result of the IRS adjustment. e. None of these choices are correct.

Answer 1

Correct answer is Option E.
None of these choices are correct.

Violet's taxable income will increase by $100,000 as a result of the IRS adjustment.