Laura,the Controlling Shareholder and an Employee of Southtown Corporation,receives an Annual

question 93

Multiple Choice

Laura,the controlling shareholder and an employee of Southtown Corporation,receives an annual salary of $750,000.Based on several factors including the size of the corporation's operations and a comparison of salary received by officers of comparably sized corporations,the IRS contends that Laura's salary should be no higher than $600,000.The Court upheld the IRS's position.As a result,which of the following is true?

• A)$600,000 is deductible by the corporation; $600,000 is taxable to Laura.
• B)$600,000 is deductible by the corporation; $750,000 is taxable to Laura.
• C)$750,000 is deductible by the corporation; $750,000 is taxable to Laura.
• D)$750,000 is deductible by the corporation; $600,000 is taxable to Laura.

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Definitions:

Behavioral Economists

Researchers and practitioners who study the effects of psychological, cognitive, emotional, cultural, and social factors on the economic decisions of individuals and institutions.

Human Brain Modularity

Refers to the concept that the human brain is composed of specialized regions or modules that have distinct functions.

System 1

A term used in psychology, referring to the fast, automatic, intuitive, and emotional way of thinking, as identified by Daniel Kahneman.

Heuristics

Mental shortcuts or rules of thumb that simplify decision making, not always perfect but often effective for quick judgments.