Your new clients, Johnny and June, have come to you with several questions regarding their business ventures. Using your knowledge and additional research through one of the three tax research services provided through the UIUC library system, help Johnny and June navigate their questions. Background Johnny and June are shareholders in a family business, Cash, Inc. Financials for Cash, Inc. are attached. Cash, Inc. is accrual basis for book and for tax. On April 1, Cash, Inc. distributed $100 per share to each shareholder and on October 1, Cash, Inc. distributed $200 per share to each shareholder. Ownership is as follows: Owner # of shares Tax basis Mama June (Junes mother) 250 $15,000 Big Papa (Junes father) 250 $25,000 June 100 $5,000 Jack Jack (Junes brother) 100 $5,000 Auntie Joy (Mama Junes sister) 50 $3,000 Johnny (Junes husband) 10 $750 Total 760 When asked about corporate E&P, June was not able to provide a definitive answer. She was certain that the accountant they had 3 years ago had kept good records of E&P and she was able to provide some information about the intervening years on the attached schedule. Mama June has expressed a desire to slow down a bit and Cash, Inc. is considering redeeming 75 shares from Mama June for $150,000 on December 31 to provide her funds for retirement. Jack Jack has been questioning whether C corporation tax status is the most advantageous for Cash, Inc. Prepare a memo to answer the following questions for the client: 1. What is Cash, Inc.s taxable income and how much tax will the entity pay? 2. How will each shareholder be taxed on each of the distributions made by Cash, Inc.? 3. If Cash, Inc. redeems Mama Junes stock per the plan being considered, how will that redemption be taxed? 4. How would an S election change the taxation of the corporations income and the cash distributions to each shareholder? Cash Inc. Financials Sales 6,634,578 Cost of Goods Sold (2,825,985) Gross Profit 3,808,593 Interest Income 52,000 Dividend 18,500 Capital Gains 15,672 Other Income 86,172 Salaries (2,635,789) Rent (312,745) Utilities (38,920) Supplies (62,093) Repairs & Maintenance (48,291) Depreciation (153,004) Cleaning (23,221) Charitable Contribution (59,000) Computer Service (23,943) Penalties and Fines (8,290) Real Estate Taxes (313,950) Federal Income Taxes (33,409) Total Expenses (3,712,655) Net 182,110 Cash Inc. E&P Schedules Year ended 12/31/21: Taxable Income 50,000 Non-deductible Penalties 7,000 Federal Income Tax 23,000 MACRS Depreciation 26,000 ADS Depreciation 32,000 Distributions 6/30/21 50,000