C$$cile owns a highly profitable restaurant run as a sole proprietorship. To protect herself from liabilities related to the business, C$$cile incorporates the business, becoming the sole shareholder. However, she retains personal ownership of all of the assets $($building$,$ kitchen equipment, furniture, etc.$)$ and rents them to the corporation, charging twice the normal rental value.

What might C$$cile be trying to accomplish with the rental arrangement? What is the most appropriate tax treatment of the payments made to C$$cile by the corporation?

C$$cile is likely trying to have the corporation's future distributions treated as deductible rental expense

tonot to

avoid the

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taxation of its expected profits.