ABC Corporation paid an executive $300,000.00 in annual compensation. A state court determines that this compensation was excessive and reduces the compensation to $250,000.00. Which of the following is true?

a. The IRS would allow ABC Corporation a compensation deduction of $250,000 and treat the excess compensation of $50,000 as a constructive dividend (constructive dividends are not deductible).

b. The IRS would do nothing because they do not act upon court cases involving state law.

c. None of the other choices are correct.

d. The IRS would allow ABC Corporation a compensation deduction of $250,000 but treat the excess compensation of $50,000 as a deductible constructive dividend.

e. The IRS would allow ABC Corporation a compensation deduction of $0 and treat the entire $300,000 as a constructive dividend (constructive dividends are not deductible).