Agnes is the sole shareholder of Violet Inc. For the current year, she receives
ID: 2448605 • Letter: A
Question
Agnes is the sole shareholder of Violet Inc. For the current year, she receives from Violet a salary of $200,000 and dividends of $100,000. Violet's taxable income for the current year is $500,000. On audit, the IRS treats $50,000 of Agnes' salary as unreasonable. Which of the following statements is correct?
Agnes' gross income will increase by $50,000 as a result of the IRS adjustment.
Violet's taxable income will not be affected by the IRS adjustment.
Agnes' gross income will decrease by $50,000 as a result of the IRS adjustment.
Violet's taxable income will increase by $50,000 as a result of the IRS adjustment.
None of the above
Please state and justify your answer.
Explanation / Answer
The correct option is option-D.
As per the IRS, V's taxable income will increase by $50,000 as a result of the IRS adjustment.