Compensation Paid to a Shareholder and Subsequently Recharacterized by the IRS

question 50

True/False

Compensation paid to a shareholder and subsequently recharacterized by the IRS as a dividend because it was considered "unreasonable" will affect only the income tax liability of the corporation paying the compensation and the receiving shareholder.

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Definitions:

Services

Intangible products that are produced and consumed at the same time, offering value without transferring ownership.

Free Trade

International trade left to its natural course without tariffs, quotas, or other restrictions.

NAFTA

The North American Free Trade Agreement, a treaty between Canada, Mexico, and the United States that removed tariff barriers between the nations.

GATT

The General Agreement on Tariffs and Trade, an international treaty that aimed to reduce tariffs and other trade barriers; precursor to the World Trade Organization.