Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Graham is the sole shareholder of Logan Corporation. For the past five years, Logan has reported little or no taxable income as a result

image text in transcribedimage text in transcribedimage text in transcribed

Graham is the sole shareholder of Logan Corporation. For the past five years, Logan has reported little or no taxable income as a result of paying Graham a salary of $500,000 per year. During a recent IRS audit, the revenue agent determined that Graham's educational and business experience, and his time devoted to managing Logan, justified a salary of only $200,000. Thus, the agent recharacterized $300,000 of the payments from the corporation as a dividend. Assume that all dividends are taxed to the individuals at a 20% tax rate. Required: a. Calculate the additional income tax liability for Logan as a result of this constructive dividend treatment. Assume Logan's marginal tax rate for the year in question was 34 percent. (Ignore any payroll tax consequences.) b. What are the tax consequences to Graham as a result of the constructive dividend treatment? Calculate the change in Graham's income tax liability as a result of this change. Assume that Graham's marginal tax rate on ordinary income is 37 percent. (Ignore any payroll tax consequences.) c. Determine the total impact on Treasury tax collections as a result of this audit finding Complete this question by entering your answers in the tabs below. Required A Required B Required C Calculate the additional income tax liability for Logan as a result of this constructive dividend treatment. Assume Logan's marginal tax rate for the year in question was 34 percent. (Ignore any payroll tax consequences.) Additional income tax liability per year Required A Required B >

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting Information Systems

Authors: Marshall B. Romney, Paul J. Steinbart

13th edition

133428532, 978-0133428537

More Books

Students also viewed these Accounting questions

Question

Suggest a much better sampling method.

Answered: 1 week ago

Question

Explicar las etapas en el proceso de venta personal. OA4

Answered: 1 week ago

Question

Describir las principales funciones de la administracin de ventas .

Answered: 1 week ago

Question

20-2. En qu consiste la administracin de ventas ?

Answered: 1 week ago