Question: Mr and Mrs Soon are the sole shareholders of SW

Mr. and Mrs. Soon are the sole shareholders of SW Inc. For the last three years, SW has employed their son as a sales representative and paid him a $30,000 annual salary. During a recent IRS audit, the revenue agent discovered that the son has never made a sale and spends most of his time playing saxophone in a jazz band. Determine the potential effect of this discovery on SW’s taxable income and on Mr. and Mrs. Soon’s taxable income under the following assumptions:
a. SW Inc. is an S corporation.
b. SW Inc. is a taxable corporation.

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  • CreatedNovember 03, 2015
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