Comfort, Inc., a tax-exempt hospital, is planning to operate a pharmacy that wil
ID: 2414535 • Letter: C
Question
Comfort, Inc., a tax-exempt hospital, is planning to operate a pharmacy that will be classified as an unrelated trade or business. Comfort establishes the pharmacy as a wholly owned subsidiary. During the current year, the subsidiary generates taxable income of $280,000 and pays dividends of $200,000 to Comfort.
Click here to access the tax table to use for this problem. If amount is zero, enter "0".
a. Complete the statement below regarding the subsidiary's tax consequences and its Federal income tax liability, if any. Since the subsidiary is not an exempt organization, it is taxed as a regular corporation. The Federal income tax liability is $____________ .
Explanation / Answer
a) Federal income tax liability would be 25% of the income pays as dividend i.e. = 200,000*25% = 50,000.
B) As control requirement is of 80%, only 80% inome would be liable to tax i.e. = 200,000*80%*25%
= 160,000*25% = 40,000