An entity has the following income for the current year:
Operations .............. $92,000
Tax-exempt interest income ....... 19,000
Long-term capital gain ......... 60,000
The entity has earnings and profits (AAA for an S corporation) of $900,000 at the beginning of the year. A distribution of $200,000 is made to the owners.
a. Calculate the taxable income if the entity is (1) a C corporation and (2) an S corporation.
b. Determine the effect of the distribution on the shareholders if the entity is
(1) A C corporation
(2) An S corporation.