10. RonisCEOofandowns100percentof WTEnterprises,acash- basis, calendar-year corporation. The company has always been profitable but over the last five years Ron's salary has increased from over $400,000 per year to over $1,000,000 and it has failed to pay dividends. Which of the following will not occur if the IRS determines that $500,000 of his salary is unreasonable? a. Ron will pay an additional tax on the $500,000 re-characterized as dividend. b. Ron will be eligible for a refund of Medicare taxes. c. WT will lose a $500,000 deduction for the recharacterized dividend. d. WT will be eligible for a refund of a portion of FICA taxes paid.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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10. RonisCEOofandowns100percentof WTEnterprises,acash- basis, calendar-year corporation. The company has always been profitable but over the last
five years Ron's salary has increased from over $400,000 per year to over $1,000,000 and it has failed to pay dividends. Which of the following will not occur
if the IRS determines that $500,000 of his salary is unreasonable? a. Ron will pay an additional tax on the $500,000 re-characterized as dividend. b. Ron will
be eligible for a refund of Medicare taxes. c. WT will lose a $500,000 deduction for the recharacterized dividend. d. WT will be eligible for a refund of a
portion of FICA taxes paid.
Transcribed Image Text:10. RonisCEOofandowns100percentof WTEnterprises,acash- basis, calendar-year corporation. The company has always been profitable but over the last five years Ron's salary has increased from over $400,000 per year to over $1,000,000 and it has failed to pay dividends. Which of the following will not occur if the IRS determines that $500,000 of his salary is unreasonable? a. Ron will pay an additional tax on the $500,000 re-characterized as dividend. b. Ron will be eligible for a refund of Medicare taxes. c. WT will lose a $500,000 deduction for the recharacterized dividend. d. WT will be eligible for a refund of a portion of FICA taxes paid.
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If a person’s salary is considered to be illegal or incorrect that person is eligible to pay that amount as taxes to the government. 

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