Question

What amount would Becca declare on her income tax return if Becca and Suzanne had formed a Subchapter S corporation and there was no provision in their agreement on how profits are to be split? a. ​the full $275,000 b. ​$137,500 c. ​the Subchapter S corporation must retain at least half of the $275,000 and Becca reports half of $137,500 d. ​nothing, because the Subchapter S corporation reports that income and pays the taxes

Answer 1

Answer: B. 137,500

Explanation: since there was no provision in their agreement on how profits are to be split,

The full profit after expenses will be split/shared equally for peace sake.

ie $275,000÷2 = $137,500

Also, following Subchapter S corporation; it requires that  all the owners be treated the same way in terms of their shares of the firm’s operating profits, liquidation profits, and distributions of those profits.