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