Cathy is the President and sole shareholder of Boxer,Inc.,a regular corporation.The corporation reported taxable income of $435,000 after deducting Cathy's $800,000 salary.If the IRS disallowed $550,000 of the salary as unreasonable compensation,the corporation's regular income tax will change by a:

Question

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If the IRS disallows $550,000 of Cathy's salary as unreasonable, this amount will be added back to the corporation's taxable income, increasing it by $550,000. The corporate tax rate is 21%, so the increase in tax will be $550,000 * 21% = $115,500. However, the question asks for the change in regular income tax, which is calculated based on the new taxable income of $985,000 ($435,000 + $550,000). The tax on $985,000 is $206,850, compared to the original tax on $435,000, which is $91,350. The difference is $206,850 - $91,350 = $115,500, which is not an option. Therefore, the correct choice is based on the closest calculation, which is $187,000 increase.

Cathy Is the President and Sole Shareholder of Boxer,Inc