Paula Is the Sole Shareholder of Violet, Inc

question 119

Multiple Choice

Paula is the sole shareholder of Violet, Inc. For 2018, she receives from Violet a salary of $300,000 and dividends of $100,000. Violet's taxable income for 2018 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 decrease by $100,000 as a result of the IRS adjustment.
• E) None of the above is correct.

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