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While James Craig and his former classmate Paul Dolittle both studied accounting at school, they ended up pursuing careers in professional cake decorating. Their company, Good to Eat (GTE), specializes in custom-sculpted cakes for weddings, birthdays, and other celebrations. James and Paul formed the business at the beginning of 2023, and each contributed 270,000 in exchange for a 50 percent ownership interest. GTE also borrowed 1,080,000 from a local bank. Both James and Paul had to personally guarantee the loan. Both owners provide significant services for the business. The following information pertains to GTE's 2023 activities: - GTE uses the cash method of accounting (for both book and tax purposes) and reports income on a calendaryear basis. - GTE received 1,550,000 of sales revenue and reported 720,000 of cost of goods sold (it did not have any ending inventory). - GTE paid 140,000 compensation to James, 140,000 compensation to Paul, and 150,000 of compensation to other employees (assume these amounts include applicable payroll taxes, if any). - GTE paid 37,000 of rent for a building and equipment, 42,000 for advertising, 75,600 in interest expense, 6,200 for utilities, and 4,200 for supplies. - GTE contributed 16,000 to charity. - GTE received a 5,400 qualified dividend from a great stock investment (it owned 2 percent of the corporation distributing the dividend), and it recognized 3,700 in short-term capital gain when it sold some of the stock. - On December 1, 2023, GTE distributed 42,000 to James and 42,000 to Paul. - GTE has qualified property of 322,000 (unadjusted basis). Assume James and Paul formed GTE as an S corporation. 1. Compute the tax basis of Paul's stock in GTE at the end of 2023. 2. What amount of Paul's income from GTE is subject to FICA or self-employment taxes?