Problem 18-28 (a) (LO. 5)

A business entity's taxable income before the cost of certain fringe benefits paid to owners and other employees is $11,400,000. The amounts paid for these fringe benefits are as follows:

Note the following: (1) Assume the fringe benefit plans are not discriminatory and (2) The business entity is equally owned by four owners.

	Owners		Other Employees
Group term life insurance	$500,000		$1,200,000
Meals and lodging incurred for the
convenience of the employer	300,000		550,000
Pension plan	$160,000*		$480,000
*H.R. 10 (Keogh) plan for partnership and S corporation

The taxable income of the business entity, if it is a partnership, is $. If the entity is a C corporation, it is $, and if the entity is an S corporation, it is $.

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b. Indicate whether the following statements are true or false regarding the effects on the owners for each of the three business forms.

1. Greater-than-2% shareholders of an S corporation are treated the same as employees for fringe benefit purposes.T/F 2. For group term life insurance and meals and lodging to be treated as fringe benefits, the individual must be an employee.T/F 3. For the owner-employees of a partnership or an S corporation who have contributions made to their H.R. 10 plans by the business entity, the amounts paid must be included in their gross income.T/F 4. The amounts paid are deductible by the C corporation and excludible by the employee-shareholders.T/F