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:

Splanchnic Nerves

Nerves that innervate the viscera, conveying information to and from the gut and other internal organs.

Sympathetic Fibers

Nerves of the sympathetic nervous system that act to regulate the body's unconscious actions and are key in the fight or flight response.

Spinal Cord

The main pathway for information connecting the brain and peripheral nervous system.

Thoracic

Relating to the chest region or thorax of the body.