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

Exercise 21

Jabar Corporation, a C corporation, projects that it will have taxable income of $300,000 before incurring any lease expenses.Jabar's tax rate is 35 percent.Abdul, Jabar's sole shareholder, has a marginal tax rate of 35 percent on ordinary income and 15 percent on dividend income.Jabar always distributes all of its after-tax earnings to Abdul.a.What is the amount of the double-tax on Jabar Corp.s $300,000 pre-lease expense income if Jabar Corp.distributes all of its after-tax earnings to its sole shareholder Abdul?
b.What is the amount of the double-tax on Jabar Corp.s $300,000 pre-lease expense income if Jabar leases equipment from Abdul at a cost of $30,000 for the year?
c.What is the amount of double-tax on Jabar Corp.s $300,000 pre-lease expense income if Jabar Corp.leases equipment from Abdul at a cost of $30,000 for the year but the IRS determines that the fair market value of the lease payments is $25,000?