1. Kirby, the sole shareholder of Falcon, Inc., leases a building to the corporation. The taxable income of the corporation for the tax year, before deducting the lease payments, is projected to be $500,000.

a. What are the tax consequences to Kirby and to Falcon if Kirby leases a building to the

corporation for $400,000?

b. Is there a potential pitfall? How would it change the tax consequences to Kirby and to

Falcon?