The Revenue Agent Who Audited the Form 1120 Filed by LCW

question 80

Multiple Choice

The revenue agent who audited the Form 1120 filed by LCW Inc. recharacterized $125,000 of the salary paid to Ms. Lewis (LCW's president and controlling shareholder) as a constructive dividend. LCW's marginal tax rate is 21%, and Ms. Lewis' marginal tax rate is 32%. Which of the following is not a consequence of the recharacterization?

• A) LCW's taxable income will increase.
• B) Ms. Lewis' taxable income will increase.
• C) Ms. Lewis' payroll tax liability will decrease.
• D) Ms. Lewis' income tax liability will decrease.

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Definitions:

Licensee

One who receives a license to use, or enter onto, another’s property.

Company Name

The official legal name of a business entity registered under which it operates in the commercial world.

Trademark Dilution

The weakening or diluting of a trademark's distinctive quality or reputation by unauthorized use.

Intellectual Property

Property resulting from intellectual, creative processes. Patents, trademarks, and copyrights are examples of intellectual property.