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Eagle, Inc

question 10

Essay

Eagle, Inc. recognizes that it may have an accumulated earnings tax problem. According to its calculation, Eagle anticipates it has accumulated taxable income, before reduction for dividends paid, of $400,000 for its current tax year. Assume that its shareholders are in the 33% marginal tax bracket.
a. Calculate the maximum amount of tax that Eagle and its shareholders might pay if the accumulated earnings tax is assessed.
b. Calculate the maximum amount of tax that Eagle and its shareholders might pay if it distributes dividends to prevent an accumulated earnings tax assessment from occurring.


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