Paul, who is in the 24% tax bracket, is the sole shareholder of a corporation and receives a salary of $60,000 each year. To avoid double taxation, he makes an S election for the corporation. The corporation currently is earning $100,000, and he expects earnings to grow at a rate between 15% and 20% per year. The earnings are reinvested in the growth of the corporation, and no plans exist for distributions to Paul.

Complete the paragraph below regarding problems may Paul have created by making the S election.

A C Corporation is subject to double taxation only if it makes (special election/distributions to the shareholders) . (As an S corporation/c corporation/c or s corporation) , Paul will be taxed on the $100,000 even though he did not receive it. Therefore, by making the S election, Paul may have created (a tax evasion/a wherewithal to pay concept/n conduit entity concept/an unreasonable compensation) problem for himself. In addition, by making the S election, he (will/will not) benefit from the qualified business deduction (QBI).