Turtle, a C corporation, has taxable income of $300,000 before paying salaries to the three equal shareholder-employees, Britney, Shania, and Alan. Turtle follows a policy of distributing all after-tax earnings to the shareholders.
a. Determine the tax consequences for Turtle, Britney, Shania, and Alan if the corporation pays salaries to Britney, Shania, and Alan as follows.

b. Is Turtle likely to encounter any tax problems associated with either option? Explain.

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Option 1 Britney Shania Alan $135,000 90,000 75,000 Option 2 Britney Shania Alan $67,500 45,000 37,500