Laura,the controlling shareholder and an employee of Southwest Corporation,receives an annual salary of $750,000.Based on several factors including the size of the corporation's operations and a comparison of salary received by officers of comparably-sized corporations,the IRS contends that Laura's salary should be no higher than $600,000.The Court upheld the IRS's position.As a result,which of the following is true?
A)$600,000 is deductible by the corporation; $600,000 is taxable to Laura.
B)$600,000 is deductible by the corporation; $750,000 is taxable to Laura.
C)$750,000 is deductible by the corporation; $750,000 is taxable to Laura.
D)$750,000 is deductible by the corporation; $600,000 is taxable to Laura.

Question

Quizplus · Accepted Answer

The Court upheld the IRS's position that Laura's salary should be no higher than $600,000. Therefore, only $600,000 of her salary is considered reasonable and deductible by the corporation. The remaining $150,000 is considered excessive and nondeductible. Laura will still have to pay taxes on her entire salary of $750,000 as it is considered income to her. Therefore, $600,000 is deductible by the corporation, and $750,000 is taxable to Laura.

Laura,the Controlling Shareholder and an Employee of Southwest Corporation,receives an Annual