Gordon owns 85 percent of the stock of Performance Motor Parts Mfg. Corp. Last year he earned a salary of $350,000 and a $700,000 bonus. Gordon's written employment contract requires him to repay any portion of the bonus that the IRS, in an audit, determines should be classified as a dividend rather than as compensation. This year, the IRS audited the company. The IRS determined that a portion of the putative bonus, $450,000, was actually a dividend. Pursuant to the terms of his contract, Gordon repaid that amount to the company. 

Should Gordon amend his last year's tax return to report only $600,000 of income, or should he deduct the $450,000 repayment this year?

Answer rating: 100% (QA)

Gordon should deduct the 450000 repayment this year on his tax return rather tha... View the full answer