Karl Stick is president of Stock Company. He also owns 100 percent of its stock. Karl's salary
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Karl Stick is president of Stock Company. He also owns 100 percent of its stock. Karl's salary is $120,000. At the end of the year, Karl was paid a bonus of $100,000 because the firm had a good year. Stock Company deducted $220,000 as compensation expense for the year. Upon audit, $80,000 of the deduction was disallowed.
Assume that Karl's tax bracket is 31 percent and Stock Company's is 34 percent.
What is the dollar impact of the IRS reclassification?
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