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 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 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 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.) ed A Requiredo Annual tax cost as a result of this change Annual tax savings as a result of this change 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 Determine the total impact on Treasury tax collections as a result of this audit finding Total impact on Treasury tax collections is decrease increase
