Pepper,Inc. ,an S corporation in Norfolk,Virginia,has 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 § 1375 penalty tax payable?

Question

Quizplus · Accepted Answer

Pepper Inc. is subject to the penalty tax under § 1375 for its excessive passive investment income, which is computed as follows:

Taxable interest: $380,000
Deductions attributable to interest income: - $140,000
Excess taxable interest: $240,000

Excess passive investment income: $240,000 - $250,000 (threshold amount) = $0

Since Pepper Inc. did not have any excess passive investment income, it is not subject to the penalty tax under § 1375. Therefore, the answer is (A) $0.