Emma,the sole shareholder of Quail Corporation (a C corporation),has the corporation pay her a salary of $300,000 in 2010.The Tax Court has held that $80,000 represents unreasonable compensation.Assuming Emma is in the 35% bracket in 2010,the Tax Court's holding will increase total tax she pays in 2010.

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The Tax Court's holding will decrease the total tax Emma pays because the $80,000 deemed unreasonable compensation will be treated as a dividend, which is taxed at a lower rate than ordinary income.

Emma,the Sole Shareholder of Quail Corporation (A C Corporation),has the Corporation