Pine, Inc. is an S corporation with 5 equal shareholders. Pine is a construction company that also owns and operates several strip malls. Pine did not build any of the strip malls. Each of the five shareholders is in a maximum individual ordinary income tax bracket of 24%. The strip malls operate under triple net leases. Most of the leases are for an annual calendar year-to-year term. Pine was a C corporation until last year when it made its first S election. The current year is the second year of operations as an S corporation. At the end of this current year Pine will have $50,000 of accumulated earnings and profits from its C corporation history and a balance of $120,000 in its accumulated adjustments account (AAA). During the current year Pine reported the following from operations: Gross construction income $ 800,000 Construction costs 400,000 S/H wages allocable to: construction activities 100,000 = Gross rental income $ 400,000 Rental depreciation 75,000 Common maintenance 30,000 Advertising 10,000 Security 5,000 Advise Pine on the following: Its exposure to the Section 1375 excess net passive income (show your calculations and estimate the 1375 tax). 

Suggest ways to reduce Pine’s exposure to the Section 1375 excess net passive income tax (explain in detail your proposals).

Answer rating: 100% (QA)

a The best way to reduce suns exposure to the Section 1375 excess net passive income tax is to minim... View the full answer