An S Corporation Reports Ordinary Income of $120,000 After Deducting

question 21

Multiple Choice

An S corporation reports ordinary income of $120,000 after deducting $20,000 for Fred's salary. Fred and his three children own the S corporation equally. The IRS determines Fred's stock transfer to his three children is not bona fide. Reasonable compensation for Fred is $40,000. How much of the S corporation's $140,000 pre-salary income must be reported by Fred?

• A)$140,000
• B)$100,000
• C)$50,000
• D)$40,000

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Definitions:

Fair Competition

A market condition in which competitors have equal opportunities to offer goods or services, with minimal barriers to entry.

Consumer Rights

The legal entitlements and protections afforded to consumers, which may include the right to safety, the right to be informed, the right to choose, and the right to be heard.

S Corporation

A special type of corporation in which the owners are taxed as partners.

Flexibility

The ability to adapt to new, different, or changing requirements.