Luis is the sole shareholder of a regular C corporation, and Eduardo owns a proprietorship. In the current year, both
businesses make a profit of $80,000 and each owner withdraws $50,000 from his business. With respect to this
information, which of the following statements is incorrect?
a. Eduardo must report $80,000 of income on his return.
b. Luis must report $80,000 of income on his return.
c. Eduardo's proprietorship is not required to pay income tax on $80,000.
d. Luis's corporation must pay income tax on $80,000.
e. None of the above

The company is a separate entity so just like a person its company's obligation to pay taxes on its earnings. This means that the corporation will have to pay taxes on $80,000 whereas its shareholder Luis who receives the dividend of $50,000 will have to income tax on this amount. The proprietorship's owner will have to pay taxes on the amount the business earns which stands at $80,000 because proprietorship doesn't have any separate identity like a company.

The option B is not consistent with the above which is that it says Luis will have to pay tax on $80,000 who infact has to pay tax on $50,000 and the company C will have to pay tax on $80,000 due to its separate entity status.