Kirby, the sole shareholder of Falcon, Inc., leases a building to the corporation. The taxable income of the corporation for 2014, before deducting the lease payments, is projected to be $500,000.
a. What are the tax consequences to Kirby and to Falcon if Kirby leases a building to the corporation for $400,000?
b. Is there a potential pitfall? How would it change the tax consequences to Kirby and to Falcon?

Question

Quizplus · Accepted Answer

The Answer of Kirby, the sole shareholder of Falcon, Inc., leases a building to the corporation. The taxable income of the corporation for 2014, before deducting the lease payments, is projected to be $500,000.
a. What are the tax consequences to Kirby and to Falcon if Kirby leases a building to the corporation for $400,000?
b. Is there a potential pitfall? How would it change the tax consequences to Kirby and to Falcon?

Kirby, the Sole Shareholder of Falcon, Inc