Tuttle Corporation (A C Corporation)projects That It Will Have Taxable

Essay

Tuttle Corporation (a C corporation)projects that it will have taxable income for the year of $300,000 before incurring any interest expense.Assume Tuttle's tax rate is 35 percent.
a.What is the amount of the combined corporate and shareholder level tax on the $300,000 of pre-interest expense earnings if Ruth,Tuttle's sole shareholder,lends Tuttle Corporation $100,000 at the beginning of the year,Tuttle pays Ruth $10,000 of interest on the loan (interest is considered to be reasonable),and Tuttle distributes all of its after-tax earnings to Ruth? Assume her ordinary marginal rate is 33 percent and dividend tax rate is 15 percent.
b.Assume the same facts as in part a except that the IRS determines that the fair market value of the interest should be $8,000.What is the amount of the combined corporate and shareholder level tax on Tuttle Corporation's pre-interest expense earnings?