Flycatcher Corporation, a C Corporation, Has Two Equal Individual Shareholders

question 35

Multiple Choice

Flycatcher Corporation, a C corporation, has two equal individual shareholders, Nancy and Pasqual. In the current year, Flycatcher earned $200,000 net profit and paid a dividend of $40,000 to each shareholder. Regardless of any tax consequences resulting from their interests in Flycatcher, Nancy is in the 28% marginal tax bracket and Pasqual is in the 35% marginal tax bracket. With respect to the current year, which of the following statements is incorrect?

• A) Flycatcher can avoid the corporate tax altogether by paying out all $200,000 of net profit as dividends to the shareholders.
• B) Nancy incurs income tax of $6,000 on her dividend income.
• C) Pasqual incurs income tax of $6,000 on his dividend income.
• D) Flycatcher pays corporate tax on $200,000.
• E) None of the above.

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Definitions:

Foregut

Cephalic portion of the primitive digestive tube in the embryo.

Diencephalon

An area of the brain encompassing components like the thalamus and hypothalamus, which play a role in sensory and automatic body functions.

Hindgut

Caudal or terminal part of the embryonic gut.

Cloaca

In early embryos, the endodermally lined chamber into which the hindgut and allantois empty.