Jason, an architect, is the sole shareholder of Purple Corporation, a personal service corporation. The corporation paid Jason a salary of $225,000 during its fiscal year ending October 31, 2011. How much salary must Purple pay Jason during the period November 1 through December 31, 2011, to permit the corporation to continue to use its fiscal year without negative tax effects?
A) $18,750.
B) $37,500.
C) $187,500.
D) $225,000.
E) None of the above.

Question

Quizplus · Accepted Answer

To maintain its fiscal year, Purple Corporation must pay Jason a reasonable salary during the entire fiscal year. As Jason has already received $225,000 during the fiscal year ending October 31, 2011, the corporation must pay him an additional amount equal to at least the lesser of $25,000 or 25% of $225,000, which is $56,250. Since only two months remain in the fiscal year, the corporation must pay Jason $56,250 × 2 ÷ 12 = $9,375 per month or $18,750 for two months to maintain its fiscal year. Therefore, the correct answer is B.

Jason, an Architect, Is the Sole Shareholder of Purple Corporation