The revenue agent who audited the Form 1120 filed by LCW Inc. recharacterized $125,000 of the salary paid to Ms. Lewis (LCW's president and controlling shareholder) as a constructive dividend. LCW's marginal tax rate is 21%, and Ms. Lewis' marginal tax rate is 32%. Which of the following is not a consequence of the recharacterization?
A. LCW's taxable income will increase.
B. Ms. Lewis' income tax liability will decrease.
C. Ms. Lewis' payroll tax liability will decrease.
D. Ms. Lewis' taxable income will increase.
Answer: D
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