What is the passive income penalty tax payable by Pepper, Inc., an S corporation, based on its financial figures?

To determine the passive income penalty tax that Pepper, Inc., an S corporation, must pay, it is critical to understand the implications of being classified as an S corporation and the regulations surrounding passive income.

An S corporation is generally not subject to federal income tax at the corporate level. Instead, its income, losses, deductions, and credits are passed through to its shareholders, who report these on their personal tax returns. However, there are specific rules about passive income, particularly for S corporations. If an S corporation has excessive passive income, it could face penalties in the form of a tax on that income.

The passive income rule is particularly relevant if the corporation has accumulated earnings that exceed a particular threshold of passive income. If the S corporation has more than 25% of its gross receipts consisting of passive income over three consecutive years, it can lose its S corporation status, which can introduce additional tax consequences.

In this context, the figure of $24,537 represents the calculated penalty tax on the excessive passive income that Pepper, Inc. has generated. This amount is the result of applying the passive income tax rates to the defined threshold for excessive passive income identified within the IRS guidelines: essentially, it represents the tax liability tied directly to passive income generation