Brown, Inc., has accumulated earnings and profits at the end of the year of $600,000. Brown pays a salary and bonus of $175,000 to Alice, its CEO. Brown's taxable income before the salary and bonus is $200,000. The IRS classifies $75,000 of the salary and bonus as unreasonable. Calculate Brown's taxable income after the reclassification.
A) $21,250.
B) $25,000.
C) $77,750.
D) $100,000.
E) None of the above.

Question

Quizplus · Accepted Answer

After reclassifying the unreasonable portion of the salary and bonus, the taxable income would be $200,000 + $75,000 - $75,000 = $200,000. Therefore, the answer is D, $100,000.