The IRS audited S. Johnson's tax returns for the 2010 through 2012 and classified the $260,000 of distributions as salary income for each year.
Problem: What IRC is used to support the claim of the distribution as income based on the following facts and for the tax research memo?
S. Johnson and K. Morrison, attorneys at law, formed a partnership, Johnson and Morrison, Attorneys at Law, in 2002. In 2010, S. Johnson formed Johnson, P.C., and a professional corporation and entered into an employment contract to provide all his legal services to Johnson, P.C. From 2010 to 2012, S. Johnson provided legal services exclusively to Johnson and Morrison, Attorneys at Law, and its clients as an employee of Johnson, P.C. Johnson, and P.C. made distributions of $275,000 for each year, 2010, 2011 and 2012 to S. Johnson. Johnson, P.C. has operated as an S Corporation since 2010 when it was formed. S. Johnson is the sole shareholder of Johnson, P.C. and authorized a salary of $25,000 per year to be paid to him during the three years at issue. S. Johnson reported $25,000 of salary income and $235,000 of dividend distributions for each of the three years.