Tappan Company pays its sole shareholder,Carlita Hill,a salary of $200,000.At the end of each year,the company pays Carlita a "bonus" equal to the difference between the corporation's taxable income for the year (before the bonus)and $75,000.For 20X3,Tappan reported pre-bonus taxable income of $800,000 and paid Carlita a bonus of $725,000.On audit,the IRS determined that individuals working in Carlita's position earned on average $300,000 per year.The company had no formal compensation policy and never paid a dividend.How much of Carlita's compensation (salary plus bonus)might the IRS recharacterize as a dividend? Assuming the IRS recharacterizes $500,000 of Carlita's bonus as a dividend,what additional income tax liability does Tappan Company face? (Ignore payroll taxes)

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The Answer of Tappan Company pays its sole shareholder,Carlita Hill,a salary of $200,000.At the end of each year,the company pays Carlita a "bonus" equal to the difference between the corporation's taxable income for the year (before the bonus)and $75,000.For 20X3,Tappan reported pre-bonus taxable income of $800,000 and paid Carlita a bonus of $725,000.On audit,the IRS determined that individuals working in Carlita's position earned on average $300,000 per year.The company had no formal compensation policy and never paid a dividend.How much of Carlita's compensation (salary plus bonus)might the IRS recharacterize as a dividend? Assuming the IRS recharacterizes $500,000 of Carlita's bonus as a dividend,what additional income tax liability does Tappan Company face? (Ignore payroll taxes)

Tappan Company Pays Its Sole Shareholder,Carlita Hill,a Salary of $200,000