McGraw-Hill's Taxation of Business Entities 3rd Edition by Connie Weaver, Brian Spilker, Edmund Outslay, John Robinson, Ronald Worsham, Benjamin Ayers, John Barrick

Exercise 60

Sandy Corp. projects that it will have taxable income of $150,000 for the year before paying any fringe benefits. Assume Karen, Sandy's sole shareholder, has a marginal tax rate of 35 percent on ordinary income and 15 percent on dividend income. Assume Sandy's tax rate is 35 percent.
a. What is the amount of the double income tax on Sandy's $150,000 of pre-benefit income if Sandy Corp. does not pay out any fringe benefits and distributes all of its after-tax earnings to Karen
b. What is the amount of the double income tax on Sandy's $150,000 of pre-benefit income if Sandy Corp. pays Karen's adoption expenses of $10,000 and the payment is considered to be a nontaxable fringe benefit Sandy Corp. distributes all of its after-tax earnings to Karen.
c. What is the amount of the double income tax on Sandy's $150,000 of pre-benefit income if Sandy Corp. pays Karen's adoption expenses of $10,000 and the payment is considered to be a taxable fringe benefit Sandy Corp. distributes all of its after-tax earnings to Karen.