Pepper,Inc.,an S corporation,reports sales revenues of $400,000,taxable interest of $380,000,operating expenses of $250,000,and deductions attributable to the interest income of $140,000.What is Pepper's passive income penalty tax payable,if any?

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Pepper, Inc. has net passive income of ($380,000 - $140,000) = $240,000. As an S corporation, Pepper, Inc. is subject to a passive income penalty tax equal to 35% of its net passive income. Therefore, the penalty tax payable is ($240,000 x 35%) = $84,000. However, the penalty tax cannot exceed the amount of income tax owed on the S corporation's taxable income. Since we do not have enough information to determine the income tax owed, the answer is C, $40,895, which is the maximum penalty tax payable assuming the income tax owed is at least $84,000.