If PC was a C corporation, the IRS would be interested in determining whether the salaries paid to officers were too large to be allowed as a tax deduction. However, because PC is an S corporation, the IRS is interested in determining whether the salaries are too small for employees who are also shareholders. Explain why the IRS has this concern related to S corporations. During the next tax year, PC wants to give "employer-provided health insurance" as a nontaxable fringe benefit to all of its employees (§106), including Cora and Scout. Describe how this will impact Cora's tax liability, given that she is greater than a 2-percent shareholder-employee.

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The IRS has this concern related to S corporations because in an S corporation sha... View the full answer