Paula Is the Sole Shareholder of Violet, Inc

question 82

Multiple Choice

Paula is the sole shareholder of Violet, Inc.For 2012, she receives from Violet a salary of $300,000 and dividends of $100,000.Violet's taxable income for 2012 is $500,000.On audit, the IRS treats $100,000 of Paula's salary as unreasonable.Which of the following statements is correct?

• A)Paula's gross income will increase by $100,000 as a result of the IRS adjustment.
• B)Violet's taxable income will not be affected by the IRS adjustment.
• C)Paula's gross income will decrease by $100,000 as a result of the IRS adjustment.
• D)Violet's taxable income will increase by $100,000 as a result of the IRS adjustment.
• E)None of the above is correct.

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Definitions:

Direct Foreign Investment

An investment made by a company or individual in one country in business interests in another country, in the form of either establishing business operations or acquiring business assets.

Research And Development Facility

A specialized workspace dedicated to the exploration and creation of new products, services, or technologies.

Pharmaceutical Company

A commercial business licensed to research, develop, market, and/or distribute drugs, most commonly in the context of healthcare.

Ethnocentric Staffing Model

A staffing approach used by multinational companies that primarily uses parent country nationals to staff higher-level foreign positions.