Pine, Inc. is an S corporation with 5 equal shareholders. Pine is a construction company that also owns and operates several strip malls. Pine did not build any of the strip malls. Each of the five shareholders is in a maximum individual ordinary income tax bracket of 24%. The strip malls operate under triple net leases. Most of the leases are for an annual calendar year-to-year term. Pine was a C corporation until last year when it made its first S election. The current year is the second year of operations as an S corporation. At the end of this current year Pine will have $50,000 of accumulated earnings and profits from its C corporation history and a balance of $120,000 in its accumulated adjustments account (AAA).

During the current year, Pine reported the following from operations:

Gross construction income $ 800,000

Construction costs 400,000

S/H wages allocable to:

construction activities 100,000

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Gross rental income $ 400,000

Rental depreciation 75,000

Common maintenance 30,000

Advertising 10,000

Security 5,000

Advise Pine on the following:

Its exposure to Section 1375 excess net passive income (show your calculations and estimate the 1375 tax).

Suggest ways to reduce Pines exposure to the Section 1375 excess net passive income tax (explain in detail your proposals).