Cash basis and calendar-year corporation


Wilma is CEO of and owns 100 percent of WT Enterprises, a cash-basis, calendar-year corporation. The company has always been profitable but over the last five years Wilma's salary has increased from over $400,000 per year to over $1,000,000 and it has failed to pay dividends. Which of the following will not occur if the IRS determines that $500,000 of her salary is unreasonable?

a. Wilma will pay an additional tax on the $500,000 recharacterized as dividend.

b. Wilma will be eligible for a refund of Medicare taxes.

c. WT will lose a $500,000 deduction for the recharacterized dividend.

d. WT will be eligible for a refund of a portion of FICA taxes paid.

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Accounting Basics: Cash basis and calendar-year corporation
Reference No:- TGS065732

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