Mr and Mrs Williams Are the Sole Shareholders of Lessing

question 31

Multiple Choice

Mr and Mrs Williams are the sole shareholders of Lessing, Inc., a regular corporation. Last year, Lessing employed the Williams' son and paid him a $50,000 salary. During a recent IRS audit, the revenue agent discovered that the son rarely shows up for work and spends most of his time playing golf. Which of the following statements is true?

• A) The IRS can treat the $50,000 payment as a constructive dividend to the son.
• B) The IRS can treat the $50,000 payment as a constructive dividend to Mr. and Mrs Williams.
• C) The IRS can disallow Lessing's $50,000 deduction for the son's salary.
• D) The IRS can treat the $50,000 payment as a constructive dividend to Mr. and Mrs Williams and can disallow Lessing's $50,000 deduction for the son's salary.

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Definitions:

International Trade

The exchange of goods, services, and capital between countries, driven by comparative advantage and global demand.

Current Accounts Deficit

A measurement of a country’s trade where the value of the goods and services it imports exceeds the value of the products it exports.

Current Account Deficit

An evaluation of a nation's trade balance when the cost of its imports surpasses the value of its exports in goods and services.

Trade Deficits

Occur when a country's imports exceed its exports during a certain period, indicating an outflow of domestic currency to foreign markets.