Solution-How much of tammy''s bonus might the irs as a

How much of tammy''s bonus might the irs as a dividend

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Reference no: EM131800783

Nittany Company pays its sole shareholder, Tammy Lion, a salary of $98,400. At the end of each year, the company pays Tammy a "bonus" equal to the difference between the corporation's taxable income for the year (before the bonus) and $71,500. In this way, the company hopes to keep its taxable income at amounts that are taxed at either 15 percent or 25 percent. This year, Nittany reported pre-bonus taxable income of $747,500 and paid Tammy a bonus of $676,000. On audit, the IRS determined that individuals working in Tammy's position earned on average $338,000 per year. The company had no formal compensation policy and never paid a dividend.

a. How much of Tammy's bonus might the IRS recharacterize as a dividend?

b. Assuming the IRS recharacterizes $218,200 of Tammy's bonus as a dividend, what additional income tax liability does Nittany Company face?

Reference no: EM131800783

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How much of tammy''s bonus might the irs as a dividend

Reference no: EM131800783

Reference no: EM131800783

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