Erie Corporation Reported Taxable Income of $2,200,000 in 20X3 Before

question 43

Essay

Erie Corporation reported taxable income of $2,200,000 in 20X3 before any deduction for any payment to its sole shareholder and employee, LaBron Cleveland. Erie paid a bonus of $200,000 to LaBron at year-end. Erie Corporation is subject to a flat-rate tax of 21%. The bonus meets the requirements to be "reasonable" and is therefore deductible by Erie. LaBron is subject to a marginal tax rate of 35% on the bonus. What is the total federal income tax imposed on the corporate income earned by Erie and paid to LaBron as a bonus?

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Definitions:

Penetrating Oil

A low-viscosity oil designed to penetrate tight spaces and loosen rusted or frozen parts.

Cloud Point

The temperature at which some of the fractions in a diesel fuel begin to wax (solidify) and the fuel takes on an opaque appearance. This can cause problems in the fuel subsystem by plugging filters, resulting in engine shutdown. Most diesel fuel conditioners contain cloud point and pour point depressants.

Wax Crystals

Solid crystalline substances formed in some oils and fats that can cause blockages in fuel systems or cloud the appearance of liquids at lower temperatures.