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Paula is the sole shareholder of Violet, Inc. For 2020, she receives from Violet a...

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Accounting

Paula is the sole shareholder of Violet, Inc. For 2020, she receives from Violet a salary of $300,000 and dividends of $100,000. Violets taxable income for 2020 is $500,000. On audit, the IRS treats $100,000 of Paulas salary as unreasonable. Which of the following statements is correct?

a. Paula's gross income will increase by $100,000 as a result of the IRS adjustment.

b. Violet's taxable income will not be affected by the IRS adjustment.

c. Paula's gross income will decrease by $100,000 as a result of the IRS adjustment.

d. Violet's taxable income will increase by $100,000 as a result of the IRS adjustment.

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