LO.3 Owl is a closely held corporation owned by eight shareholders (each has 12.5%

of the stock). Selected financial information provided by Owl follows:

Taxable income $6,250,000 Positive AMT adjustments (excluding ACE adjustment) 600,000 Negative AMT adjustments (30,000)

Tax preferences 5,000,000 Retained earnings 900,000 Accumulated E & P 2,000,000 ACE adjustment 750,000

a. Calculate Owl’s tax liability if Owl is a C corporation.

b. Calculate Owl’s tax liability if Owl is an S corporation.

c. How would your answers in

(a) and

(b) change if Owl was not closely held (e.g., 5,000 shareholders with no shareholder owning more than 2% of the stock)?