Jabar Corporation, a C corporation, projects that it will have taxable income of $300,000 before incurring any lease expenses. Jabar's tax rate is 35 percent. Abdul, Jabar's sole shareholder, has a marginal tax rate of 39.6 percent on ordinary income and 20 percent on dividend income. Jabar always distributes all of its after-tax earnings to Abdul.
a. What is the amount of the overall tax (corporate level + shareholder level) on Jabar Corp.'s $300,000 pre-lease expense income if Jabar Corp. distributes all of its after-tax earnings to its sole shareholder Abdul (include the 3.8% net investment income tax on dividend rental income)?
b. What is the amount of the overall tax on Jabar Corp.'s $300,000 pre-lease expense income if Jabar leases equipment from Abdul at a cost of $30,000 for the year (include the net investment income tax on dividend and rental income)?
c. What is the amount of the overall tax on Jabar Corp.'s $300,000 pre-lease expense income if Jabar Corp. leases equipment from Abdul at a cost of $30,000 for the year but the IRS determines that the fair market value of the lease payments is $25,000 (include the net investment income tax on rental income)?