Cali Corp.(a C corporation)projects that it will have taxable income of $250,000 for the year before paying any fringe benefits.Stacey,Cali's sole shareholder,has a marginal tax rate of 33 percent on ordinary income and 15 percent on dividend income.Assume Cali's tax rate is 34 percent.
a.What is the amount of the combined corporate and shareholder level income tax on Cali's $250,000 of pre-benefit income if Cali Corp.does not pay out any fringe benefits and distributes all of its after-tax earnings to Stacey?
b.What is the amount of the combined corporate and shareholder level income tax on Cali's $250,000 of pre-benefit income if Cali Corp.pays Stacey's adoption expenses of $50,000 and the payment is considered to be a qualified fringe benefit? Cali Corp.distributes all of its after-tax earnings to Stacey.
c.What is the amount of the combined corporate and shareholder level income tax on Cali's $250,000 of pre-benefit income if Cali Corp.pays Stacey's adoption expenses of $50,000 and the payment is considered to be a nonqualified fringe benefit? Cali Corp.distributes all of its after-tax earnings to Stacey.
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