Several years ago, Brian formed Sigma Corporation, a retail company ineligible for the U.S. production activities deduction. Sigma uses the accrual method of accounting. In 2017, the corporation reported the following items:

In addition to owning 100% of Sigma€™s stock, Brian manages Sigma€™s business and earns the $80,000 salary listed above. This salary is an ordinary and necessary business expense of the corporation and is reasonable in amount. The payroll tax on Brian€™s $80,000 salary is $12,240, $6,120 of which Sigma pays and deducts, and the other $6,120 of which Brian pays through Social Security withholding. Brian is single with no dependents and claims the standard deduction.

a. Calculate Sigma€™s and Brian€™s 2017 taxable income and total tax liability, as well as their combined tax liability. Also, calculate the corporation€™s current E&P after the dividend distribution.

b. Assume instead that Brian operates Sigma as a sole proprietorship. In the current year, the business reports the same operating results as above, and Brian withdraws $140,000 in lieu of the salary and dividend. Brian€™s self-employment tax is $20,486. Compute Brian€™s total tax liability for 2017.

c. Assume a C corporation such as in Part a distributes all of its after-tax earnings. Compare the tax treatment of long-term capital gains, tax-exempt interest, and operating profits if earned by a C corporation with the tax treatment of these items if earned by a sole proprietorship.

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Gross profit Long-term capital gain $290,000 Tax-exempt interest received Salary paid to Brian Payroll tax on Brian's salary (Sigma's share) Depreciation Other operating expenses Dividend distribution to Brian 7,000 80,000 6,120 25,000 ($21,000 for E&P purposes) 89,000