Blue, Inc., has taxable income before salary payments to its president of $700,000 in 2009. Blue is in the 34% tax bracket, and the president is in the 35% tax bracket.

Required:

a.Calculate the tax liability to Blue if the president's salary is $400,000 and if it is $100,000.

b.What tax benefit is there of paying the larger salary to the president?

c.What negative tax result may occur associated with the payment of the higher salary?