Rick owns investments that generate $20,000 of ordinary income per year (4% annual before-tax rate of return). In each part, determine how much higher or lower Rick's after-tax income would be if he transfers the investments to his wholly-owned corporation rather than owning them himself, assuming the corporation immediately distributes its after-tax income to Rick as a qualifying dividend.

a. Rick's marginal tax rate is 37% for ordinary income and 20% for qualified dividends.  His investment income is subject to the 3.8% net investment income tax.

b. Rick's marginal tax rate is 22% for ordinary income and 15% for qualified dividends. His investment income is not subject to the 3.8% net investment income tax.

c. Assume that all the investment's after-tax income will be reinvested for five years, whether Rick transfers the in vestments to his wholly-owned corporation or owns the investments himself. How would your answers to Parts a and b change in this situation?