During a recent IRS audit, the revenue agent decided that Apple, an individual, used his closely-held corporation, Fruit Tree Inc., to avoid shareholder tax by accumulating earnings beyond the reasonable needs of the business. Fruit Tree Inc.'s taxable income for the year was $875,000 and it paid no dividends. Compute Fruit Tree Inc.'s accumulated earnings tax, assuming that it had accumulated $227,500 after-tax income in prior years. Also assume that the accumulated earnings tax rate is 20% and up to $250,000 can be accumulated without incurring the accumulated earnings tax. $125,000 O $175,000 O $170,500 O $148,750

During a recent IRS audit, the revenue agent decided that Apple, an individual, used his closely-held corporation, Fruit Tree Inc., to avoid shareholder tax by accumulating earnings beyond the reasonable needs of the business. Fruit Tree Inc.'s taxable income for the year was $875,000 and it paid no dividends. Compute Fruit Tree Inc.'s accumulated earnings tax, assuming that it had accumulated $227,500 after-tax income in prior years. Also assume that the accumulated earnings tax rate is 20% and up to $250,000 can be accumulated without incurring the accumulated earnings tax. $125,000 O $175,000 O $170,500 O $148,750

SWFT Comprehensive Vol 2020

43rd Edition

ISBN:9780357391723

Author:Maloney

Publisher:Maloney

Chapter17: Corporations: Introduction And Operating Rules

Section: Chapter Questions

Problem 6BCRQ

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During a recent IRS audit, the revenue agent decided that Apple, an individual, used his closely-held
corporation, Fruit Tree Inc., to avoid shareholder tax by accumulating earnings beyond the reasonable
needs of the business. Fruit Tree Inc.'s taxable income for the year was $875,000 and it paid no
dividends. Compute Fruit Tree Inc.'s accumulated earnings tax, assuming that it had accumulated
$227,500 after-tax income in prior years. Also assume that the accumulated earnings tax rate is 20%
and up to $250,000 can be accumulated without incurring the accumulated earnings tax.
。。。
$125,000
$175,000
$170,500
$148,750

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During a recent IRS audit, the revenue agent decided that the Parker family used their closely held corporation, Falco, to avoid shareholder tax by accumulating earnings beyond the reasonable needs of the business. Falco’s taxable income was $1,010,000, it paid no dividends, and it had no business need to retain income. Falco’s marginal tax rate in prior years was 34 percent. Required: Compute Falco’s accumulated earnings tax assuming that it had accumulated $5 million after-tax income in prior years. Compute Falco’s accumulated earnings tax assuming that it had accumulated $141,000 after-tax income in prior years.
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