An S corporation reports ordinary income of $120,000 after deducting $20,000 for Fred's salary. Fred and his three children own the S corporation equally. The IRS determines Fred's stock transfer to his three children is not bona fide. Reasonable compensation for Fred is $40,000. How much of the S corporation's $140,000 pre- salary income must be reported by Fred?

Question

Quizplus · Accepted Answer

Fred must report the entire $140,000 pre-salary income because the IRS determined the stock transfer to his children was not bona fide, meaning Fred is considered the sole owner for tax purposes.

An S Corporation Reports Ordinary Income of $120,000 After Deducting