1. Michael is the President and sole shareholder of Silver, Inc. a regular corporation. The corporation reported taxable income of $1,200,000, after deducting Michael's $1,000,000 salary. If the IRS disallows $600,000 of the salary as unreasonable compensation, the corporation's regular income tax will change by an:
A. $204,000 increase
B. $175,000 increase
C. $175,000 decrease
D. $204,000 decrease
Please show your work in detail.© BrainMass Inc. brainmass.com June 3, 2020, 9:53 pm ad1c9bdddf
If the IRS audits Silver, Inc and decides that $400,000 is a reasonable amount of compensation, the remaining difference of $600,000 would be reclassified as a dividend. ...
Silver, Inc's audit by IRS proposes an increase in tax. The solution explains and shows the calculations to arrive at the correct answer. Also there is a comment about penalties that often arise in this situation.