Refer to the facts in the preceding problem. Briefly explain the payroll tax consequences of the revenue agent’s conclusions.

Data from Prob. 19

Graham is the sole shareholder of Logan Corporation. For the past five years, Logan has reported little or no taxable income as a result of paying Graham a salary of $500,000 per year. During a recent IRS audit, the revenue agent determined that Graham's educational and business experience, and his time devoted to managing Logan, justified a salary of only $200,000. Thus, the agent re-characterized $300,000 of the payments from the corporation as a dividend.