Compensation that is determined to be unreasonable is usually treated as a constructive dividend to the shareholder and is not deductible by the corporation.

Question

Quizplus · Accepted Answer

This is true. When compensation is determined to be unreasonable, it is not considered a legitimate business expense and therefore cannot be deducted by the corporation. Additionally, it may be treated as a constructive dividend to the shareholder, which means it is treated as a distribution of corporate earnings to the shareholder and can have tax implications.

Compensation That Is Determined to Be Unreasonable Is Usually Treated