Mrs Jansen Is the Sole Shareholder of Mimeo Corporation

question 15

Multiple Choice

Mrs. Jansen is the sole shareholder of Mimeo Corporation. She also owns the office building that serves as corporate headquarters. Last year, Mimeo paid $200,000 annual rent to Mrs. Jansen for use of the building. Mimeo's marginal tax rate was 21% and Mrs. Jansen's marginal tax rate on ordinary income was 37%. The revenue agent who audited Mimeo's return concluded that the fair rental value of the office building was $150,000. Compute the net impact of this audit conclusion on Mrs. Jansen's income tax liability.

• A) $8,500 increase
• B) $10,500 decrease
• C) $10,500 increase
• D) $8,500 decrease

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Definitions:

Defenses

Legal strategies and arguments used in court to justify or excuse an individual's actions or to challenge the validity of a lawsuit.

Securities Act

A federal piece of legislation enacted in 1933 that regulates the offer and sale of securities to protect investors from fraud.

Controlling Person

An individual or entity that has the power to direct or influence the management and policies of a company, typically through ownership of a significant portion of voting shares.

Affirmative Defense

A defendant’s response to a plaintiff’s claim in which the defendant attacks the plaintiff’s legal right to bring the action rather than attacking the fact of the claim or making excuses for unlawful behavior. Common