Smartmoney,Inc.was formed by three wealthy dentists to pool their investment funds.They each invested $200,000 in the corporation,which was immediately used to purchase stocks to be held as investments.The first year,the corporation received dividends of $70,000 and filed a tax return paying a corporation tax in the amount of $3,150 [($70,000 dividends - $49,000 DRD)× .15 = $3,150].The IRS audits this corporation and sends a tax bill in the amount of $10,028 ($66,850 UPHCI × 0.15 = $10,028)plus underpayment penalty and interest.What is this additional tax and what should the dentists do about it? What action(s)do you recommend the corporation take for the tax year in question and subsequent tax years?

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The Answer of Smartmoney,Inc.was formed by three wealthy dentists to pool their investment funds.They each invested $200,000 in the corporation,which was immediately used to purchase stocks to be held as investments.The first year,the corporation received dividends of $70,000 and filed a tax return paying a corporation tax in the amount of $3,150 [($70,000 dividends - $49,000 DRD)× .15 = $3,150].The IRS audits this corporation and sends a tax bill in the amount of $10,028 ($66,850 UPHCI × 0.15 = $10,028)plus underpayment penalty and interest.What is this additional tax and what should the dentists do about it? What action(s)do you recommend the corporation take for the tax year in question and subsequent tax years?