Harry and Sydney each inherited 50% of the stock in their father’s corporation when he died. Harry had been working for his father and wanted to retain control of the business. Sydney was not really interested in the family business and wanted to sell her stock to outsiders. To retain control of the corporation, Harry made Sydney a vice president of the corporation with an annual salary of $200,000. The only requirements of the position were that Sydney not sell her stock and that she let Harry run the business.

Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that you identify.