Corporation is a profitable manufacturing concern with

$ $900$ comma $000$$$900,000$

of earnings and profits$($E&P$).$ It is owned in equal shares by

RonaldRonald

and

LillyLilly$,$

husband and wife. Both individuals are actively involved in the business. Consider the following independent$$ events. Determine the tax consequences of each independent event.

a$.$ In reviewing a prior year tax return for

ReignReign$,$

the IRS determines that the

$ $420$ comma $000$$$420,000$

of salary and bonuses paid to

LillyLilly

is unreasonable and that reasonable compensation is

$ $115$ comma $000$$$115,000.$