Betsy Williams is the sole shareholder of Kurt Corporation. She also owns the office building that serves as corporate headquarters for Kurt. Last year, Kurt paid $200,000 annual rent to Betsy for use of the building. Kurt's marginal tax rate was 34 percent and Betsy's marginal tax rate was 35 percent. The revenue agent who audited Kurt's return concluded that the fair rental value of the office building was $140,000.
a. What effect does this conclusion have on Betsy's personal income tax liability?
b. What effect does this conclusion have on Kurt's corporate income tax liability?

Question

Quizplus · Accepted Answer

The Answer of Betsy Williams is the sole shareholder of Kurt Corporation. She also owns the office building that serves as corporate headquarters for Kurt. Last year, Kurt paid $200,000 annual rent to Betsy for use of the building. Kurt's marginal tax rate was 34 percent and Betsy's marginal tax rate was 35 percent. The revenue agent who audited Kurt's return concluded that the fair rental value of the office building was $140,000.
a. What effect does this conclusion have on Betsy's personal income tax liability?
b. What effect does this conclusion have on Kurt's corporate income tax liability?

Betsy Williams Is the Sole Shareholder of Kurt Corporation