McGraw-Hill's Taxation of Individuals and Business Entities 3rd Edition by Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver

Exercise 29

Amy is the sole shareholder of her corporation.Rather than have the corporation pay her a dividend, Amy decides to have the corporation declare a "bonus" at year-end and pay her tax-deductible compensation.What potential tax issue may arise in this situation? Which parties, Amy or the corporation or both, are affected by the classification of the payment?