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Can you please post the solution to the 1st problem from chapter 1 of Fundamentals of Corporate Taxation (8th edition) (p.31)

AN OVERVIEW OF THE TAXATION OF CORPORATIONS AND SHAREHOLDERS CHAPTER1 31 the dividend as wages for employment tax purposes.145 Whether or not the S corporation employment tax avoidance gambit should succeed is debatable, although anecdotal evidence suggests that it is widely used and often goes unchallenged.146 PROBLEM Boots, Inc. is a "C corporation engaged in the shoe manufacturing business. It also holds a small portfolio of securities. Boots is a calendar year, accrual method taxpayer with two equal shareholders, Emil and Betty, who are unrelated cash method taxpayers. Use the rates in 11 to determine Boots, Inc.'s tax liability, and assume for convenience that Emil and Betty each are taxable at a combined federal and state flat rate of 40% on ordinary income and a combined flat rate of 20% on qualified dividends and long-term capital gains. During the current year, Boots has the following income and expense items and makes no distributions to its shareholders: Income: Gross profit--sale of inventory 200,000 10,000 Municipal bond interest (not private activity bond... Expenses and Losses: Operating Expenses (includes 199 deduction) ACRS depreciatio. Capital losses.. 800,000 800,000 220,000 (a) Determine Boots, Inc.'s taxable income and its regular tax (b) (c) liability for the current year What result in (a), above, if Boots distributes $330,000 each to Emil and Betty as qualified dividends? What result in (a), above, if instead of paying dividends Boots pays Emil and Betty salaries of $500,000 each? What other strategies could Emil and Betty employ to reduce the impact of the corporate "double tax" In general, what are the risks of these strategies. See, e.g., 79:105(a), (b): 106; 1 19:162(a)(3); 163; 267; 1363(a); 1366(a) (1), (c) 145 See Chapter 15H, infra 146 See Tax Gap: Actions Needed to Address Noncompliance with S Corporation Tax Rules (U.S. Government Accountability Office, GAO-10-195, Dec. 2009). Legislation to close this loophole has been proposed but not yet enacted. AN OVERVIEW OF THE TAXATION OF CORPORATIONS AND SHAREHOLDERS CHAPTER1 31 the dividend as wages for employment tax purposes.145 Whether or not the S corporation employment tax avoidance gambit should succeed is debatable, although anecdotal evidence suggests that it is widely used and often goes unchallenged.146 PROBLEM Boots, Inc. is a "C corporation engaged in the shoe manufacturing business. It also holds a small portfolio of securities. Boots is a calendar year, accrual method taxpayer with two equal shareholders, Emil and Betty, who are unrelated cash method taxpayers. Use the rates in 11 to determine Boots, Inc.'s tax liability, and assume for convenience that Emil and Betty each are taxable at a combined federal and state flat rate of 40% on ordinary income and a combined flat rate of 20% on qualified dividends and long-term capital gains. During the current year, Boots has the following income and expense items and makes no distributions to its shareholders: Income: Gross profit--sale of inventory 200,000 10,000 Municipal bond interest (not private activity bond... Expenses and Losses: Operating Expenses (includes 199 deduction) ACRS depreciatio. Capital losses.. 800,000 800,000 220,000 (a) Determine Boots, Inc.'s taxable income and its regular tax (b) (c) liability for the current year What result in (a), above, if Boots distributes $330,000 each to Emil and Betty as qualified dividends? What result in (a), above, if instead of paying dividends Boots pays Emil and Betty salaries of $500,000 each? What other strategies could Emil and Betty employ to reduce the impact of the corporate "double tax" In general, what are the risks of these strategies. See, e.g., 79:105(a), (b): 106; 1 19:162(a)(3); 163; 267; 1363(a); 1366(a) (1), (c) 145 See Chapter 15H, infra 146 See Tax Gap: Actions Needed to Address Noncompliance with S Corporation Tax Rules (U.S. Government Accountability Office, GAO-10-195, Dec. 2009). Legislation to close this loophole has been proposed but not yet enacted

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