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 $810,000, it paid no dividends, and it had no business need to retain any income. Falco's marginal tax rate is 34 percent. Compute Falco's accumulated earnings tax assuming that: a. It had accumulated $4 million after-tax income in prior years. b. It had accumulated $121,000 after-tax income in prior years.
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 $810,000, it paid no dividends, and it had no business need to retain any income. Falco's marginal tax rate is 34 percent. Compute Falco's accumulated earnings tax assuming that: a. It had accumulated $4 million after-tax income in prior years. b. It had accumulated $121,000 after-tax income in prior years.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Subject: acounting
Transcribed Image Text: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 $810,000,
it paid no dividends, and it had no business need to retain any income. Falco's marginal tax rate is 34 percent. Compute Falco's
accumulated earnings tax assuming that:
a. It had accumulated $4 million after-tax income in prior years.
b. It had accumulated $121,000 after-tax income in prior years.
Complete this question by entering your answers in the tabs below.
Requited A Required B
Compute Falco's accumulated earnings tax assuming that it had accumulated $4 million after-tax income in prior
years. (Consider intermediate values in dollars and not in millions. Enter your answer also in dollars and not in millions of
dollars.)
Accumulated earnings tax
Required A
Required B >
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