The Revenue Agent Who Audited the Form 1120 Filed by LCW

question 5

Multiple Choice

The revenue agent who audited the Form 1120 filed by LCW Inc.recharacterized $125,000 of the salary paid to Ms.Lewis' (LCW's president and controlling shareholder) as a constructive dividend.LCW's marginal tax rate is 35%,and Ms.Lewis' marginal tax rate is 33%.Which of the following is not a consequence of the recharacterization?

• A)LCW's taxable income will increase.
• B)Ms.Lewis' taxable income will increase.
• C)Ms.Lewis' payroll tax liability will decrease.
• D)Ms.Lewis' income tax liability will decrease.

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