Kirby, the sole shareholder of Falcon, Inc., leases a building to the corporation. The taxable income of the corporation for the tax year before deducting the lease payments is projected to be $500,000.
a. What are the tax consequences to Kirby and to Falcon if Kirby leases a building to the corporation for $400,000?
b. Is there a potential pitfall? How would it change the tax consequences to Kirby and to
Falcon?

Question

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The Answer of Kirby, the sole shareholder of Falcon, Inc., leases a building to the corporation. The taxable income of the corporation for the tax year before deducting the lease payments is projected to be $500,000.
a. What are the tax consequences to Kirby and to Falcon if Kirby leases a building to the corporation for $400,000?
b. Is there a potential pitfall? How would it change the tax consequences to Kirby and to
Falcon?

Kirby, the Sole Shareholder of Falcon, Inc