Strong Corporation Is Owned by a Group of 20 Shareholders

question 26

Essay

Strong Corporation is owned by a group of 20 shareholders. During the current year, Strong Corporation pays $225,000 in salary and bonuses to Stedman, its president and controlling shareholder. The IRS audits Strong's tax return and determines that reasonable compensation for Stedman would be $125,000. Strong Corporation agrees to the adjustment.
a)What effect does the disallowance of part of the deduction for Stedman's salary and bonuses have on Strong Corporation and Stedman?
b)What tax savings could have been obtained by Strong Corporation and Stedman if an agreement had been in effect that required Stedman to repay Strong Corporation any amounts determined by the IRS to be unreasonable?

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Definitions:

Amniotic Fluid

The protective liquid contained within the amniotic sac that surrounds and protects the fetus during pregnancy.

Sensory Stimulation

The input that stimulates the senses, such as sight, sound, touch, taste, and smell, crucial for brain development.

Voluntary Control

The ability to consciously regulate one's own thoughts, feelings, and actions.

Motor Development

The progression of muscle control, movement skills, and physical coordination in a person, often focusing on infants and young children.