MrAnd MrsWilliams Are the Sole Shareholders of Lessing,Inc

question 35

Multiple Choice

Mr.and Mrs.Williams are the sole shareholders of Lessing,Inc.,an S 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 disallow Lessing's $50,000 deduction for the son's salary.
• B)The IRS can treat the $50,000 payment as a constructive dividend to the son.
• C)The IRS can treat the $50,000 payment as a constructive dividend to Mr.and Mrs.Williams.
• D)The discovery has no tax consequences to Mr.and Mrs.Williams or their son.

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Definitions:

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