Mr. and Mrs. Williams are the sole shareholders of Lessing, Inc., an S corporation. Last year, Lessing employed the Williams' son and paid him a $50,000 salary. During a recent IRS audit, the revenue agent discovered that the son rarely shows up for work and spends most of his time playing golf. Which of the following statements is true?

Question

Quizplus · Accepted Answer

The IRS can disallow Lessing's $50,000 deduction for the son's salary because the son rarely showed up for work and spent most of his time playing golf, which means the payment was not reasonable compensation for services rendered. The disallowance of the deduction will increase the amount of income recognized by Mr. and Mrs. Williams.

Mr and Mrs