Matt, the sole shareholder of Pastel Corporation (a C corporation), has the corporation pay him a salary of $600,000 in the current year. The Tax Court has held that $200,000 represents unreasonable compensation. Matt must report a salary of $400,000 and a dividend of $200,000 on his individual tax return.True / False.
When the payment of salary is not considered reasonable, the excess will be treated as dividend. Hence, Matt is a sole shareholder and is taxable for the dividends as well as salary.
