The IRS Agent Who Audited the Form 1120 Filed by Alano

question 100

Multiple Choice

The IRS agent who audited the Form 1120 filed by Alano Inc. concluded that $300,000 of the salary that Alano paid to its CEO and sole shareholder was a constructive dividend. As a result:

• A) The CEO/shareholder's taxable income increases by $300,000.
• B) The CEO/shareholder must repay $300,000 of his salary to Alano.
• C) Alano must distribute an additional $300,000 cash to the CEO/shareholder.
• D) Alano's taxable income increases by $300,000.

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Definitions:

Economic Profit

The gap between the overall income generated and the sum of all expenses, covering both direct and indirect costs.

Total Profit

The financial gain made by a business after subtracting all expenses from its total revenues.

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A hypothetical market structure where many firms sell an identical product, entry and exit are free, all information is known to all parties, and no single buyer or seller can influence the market price.

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