Paula is the sole shareholder of Violet, Inc. For 2020, she receives from Violet a salary of $300,000 and dividends of $100,000. Violets taxable income for 2020 is $500,000. On audit of Violet, the IRS determines that $100,000 of Paulas salary was unreasonably high. Which of the following statements is correct?

a. Paulas gross income will increase by $100,000 as a result of the IRS adjustment.

b. Paulas taxable income will not be affected by the IRS adjustment.

c. Paulas gross income will decrease by $100,000 as a result of the IRS adjustment.

d. Violets taxable income will not be affected by the IRS adjustment.

e. Paulas tax liability will be increased because of the recharacterization of $100,000 of her salary as dividend income.