Steve and Renee formed Falcon Entity on December 28 of last year. The entity operates on a calendar tax year. Each individual contributed $800,000 cash in exchange for a 50% ownership interest in the entity (common stock if a corporation; partnership interest if a partnership). In addition, the entity borrowed $400,000 from the bank. The entity operates on a calendar year. On December 28 of last year, the entity used the $2 million cash (contributions and loan) to purchase assets as indicated in the following balance sheet as of December 28 of last year:

Tax Strategy and Critical Thinking Steve and Renee formed Falcon Entity on December 28 of last year. The entity operates on a calendar tax year. Each individual contributed $800,000 cash in exchange for a 50% ownership interest in the entity (common stock if a corporation; partnership interest if a partnership). In addition, the entity borrowed $400,000 from the bank. The entity operates on a calendar year. On December 28 of Iast year, the entity used the $2 million cash (contributions and Ioan) to purchase assets as indicated in the following balance sheet as of December 28 of last year: The balance sheet did not change between December 28 of last year and the beginning of the current year. Thus, the above balance sheet also represents the balance sheet at January 1 of the current year. The following data apply to the entity for the current year: The balance sheet did not change between December 28 of last year and the beginning of the current year. Thus, the above balance sheet also represents the balance sheet at January 1 of the current year. The following data apply to the entity for the current year. Steve and Renee actively manage the entitys business. At the individual level, Steve and Renee are each single, and each individual claims the standard deduction of $12.550. Neither individal has income from sources other than listed above. a. First, assume the entity is a regular C corporation and the distributions are dividiends to Steve and Renee. For the current year, determine the following: 1. The corporation's taxable income and tax liability. 2. Steve's and Renee's individual AGI, taxable income and tax liability. Use the Tax Table on the next tab to calculate the tax liability. 3. The total tax liability for the corporation and its owners combined