Paula Is the Sole Shareholder of Violet, Inc

question 102

Multiple Choice

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 increase by $100,000 as a result of the IRS adjustment.
• B)Violet's taxable income will not be affected by the IRS adjustment.
• C)Paula's gross income will decrease by $100,000 as a result of the IRS adjustment.
• D)Violet's taxable income will decrease by $100,000 as a result of the IRS adjustment.
• E)None of these is correct.

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