Jason,an architect,is the sole shareholder of Purple Corporation,a personal service corporation.The corporation paid Jason a salary of $225,000 during its fiscal year ending October 31,2012.How much salary must Purple pay Jason during the period November 1 through December 31,2012,to permit the corporation to continue to use its fiscal year without negative tax effects?
A)$18,750.
B)$37,500.
C)$187,500.
D)$225,000.
E)None of the above.

Question

Quizplus · Accepted Answer

To avoid negative tax effects, the corporation must meet the IRS's reasonable compensation requirements. A reasonable compensation is the amount that would be paid for the same services by an unrelated party under similar circumstances.

Since Jason received a salary of $225,000 for the fiscal year ending October 31, 2012, the reasonable compensation for the remaining two months (November 1 through December 31, 2012) would be $37,500 ($225,000 / 12 months x 2 months).

Therefore, Purple Corporation must pay Jason a salary of $37,500 during the period November 1 through December 31, 2012.

The correct answer is B) $37,500.

Jason,an Architect,is the Sole Shareholder of Purple Corporation,a Personal Service