Strong Corporation Is Owned by a Group of 20 Shareholders

question 26

Essay

Strong Corporation is owned by a group of 20 shareholders. During the current year, Strong Corporation pays $225,000 in salary and bonuses to Stedman, its president and controlling shareholder. The IRS audits Strong's tax return and determines that reasonable compensation for Stedman would be $125,000. Strong Corporation agrees to the adjustment.
a)What effect does the disallowance of part of the deduction for Stedman's salary and bonuses have on Strong Corporation and Stedman?
b)What tax savings could have been obtained by Strong Corporation and Stedman if an agreement had been in effect that required Stedman to repay Strong Corporation any amounts determined by the IRS to be unreasonable?

---

Definitions:

Speaker Attitude

The feelings or views that a speaker has towards the subject or audience, often conveyed through tone or choice of words.

Changing Representation

The dynamic process of how entities, ideas, or phenomena are depicted or regarded over time.

Problem Solving

The act or process of identifying a challenge or obstacle and finding solutions or methods to overcome it.

Envision

The act of imagining or anticipating something that has not yet occurred.