Section 1211 provides that a corporation may deduct capital losses only to the extent of capital gains (without regard to whether they are short- or long-term). Therefore, Taxpayer can deduct only $30,000 of its net long-term capital loss in 2021. The remaining $10,000 long-term capital loss will be carried back 3 years or carried forward to the 5 succeeding tax years.

A controlling shareholder is defined as one who owns more than 50% (in value) of the corporation’s stock. In determining whether a shareholder owns more than 50% of a corporation’s stock, a shareholder is considered to own not only his or her own stock but also stock owned by entities in which the shareholder has an ownership or beneficial interest. Mr. Doering is a controlling shareholder because he constructively owns over 50% of Dowd Corporation. Section 267(a)(2) defers a deduction for accrued expenses or interest owed by a corporation to a controlling shareholder or by a controlling shareholder to a corporation when the two parties use different accounting methods and the payee will include the accrued expense as part of gross income at a date that is later than when it is accrued by the payer. Accrued expenses of the corporation may not be deducted until the day the controlling shareholder includes the payment in gross income. Thus, the $3,500 payment accrued on October 15, Year 1, will not be deductible until Year 2, when the controlling shareholder is paid.

Section 243 permits a corporation to deduct 50% of dividends received from a domestic taxable corporation of which it owns less than 20% of the stock, 65% of dividends received if the stock is 20% or more (but less than 80%) owned, and 100% of dividends received if the stock is 80% or more owned. In the case of dividends received from a less-than-20%-owned corporation, the dividends-received deduction is limited to the lesser of 50% of dividends received or 50% of taxable income computed without regard to any NOL deduction, any capital loss carryback, or the dividends-received deduction itself. Thus, Copper’s dividends-received deduction equals $7,500 ($15,000 dividends received × 50%) because the dividend payment is less than taxable income.

Section 243 permits a corporation to deduct 50% of dividends received from a domestic taxable corporation of which it owns less than 20% of the stock, 65% of dividends received if the stock is 20% or more owned, and 100% of dividends received if the stock is 80% or more owned.

Section 172(c) defines a net operating loss as the excess of deductions over gross income, with certain modifications. One modification is that the dividends-received deduction is limited to 50% of taxable income before the dividends-received deduction unless the full deduction creates or increases an NOL. Since an NOL is not created, the dividends-received deduction is limited to $35,000. Thus, Word has net income rather than an NOL.

Answer (D) is correct.
Under Sec. 243(a) and (c), a corporation is allowed a deduction for 65% of dividends received from an unaffiliated domestic corporation of which it owns at least 20% of the stock. Section 246(b) limits the dividends-received deduction to 65% of taxable income before inclusion of the dividends-received deduction, dividends-paid deduction, NOL, capital loss carrybacks, and certain adjustments for extraordinary dividends. However, since Carol Corporation has an NOL, the 65% taxable income limit does not apply. Therefore, Carol may deduct $65,000 ($100,000 × 65%).

A capital loss that cannot be offset in the current year may be carried back 3 years and carried forward for up to 5 years. When a capital loss is carried to another tax year, it is treated as a short-term loss regardless of its original characterization.

Under Sec. 83(a), the employee includes in income the fair value of property received for services. Under Sec. 83(h), the employer is allowed a deduction for the amount the employee must include in income when the employee includes it in income. However, when property other than cash is distributed in exchange for services, the employer must recognize a gain on the deemed sale. The fair market value of property is gross income to the employee when no longer subject to a substantial risk of forfeiture. In Year 3, the stock is no longer subject to a substantial risk of forfeiture; thus, Corporation A will deduct as salary $85,000 and recognize a gain of $60,000 ($85,000 – $25,000), both in Year 3.

Section 170(b)(2) provides that the charitable contribution deduction for a corporation may not exceed 25% of the corporation’s taxable income computed before the charitable contribution deduction, capital loss carryback, and the dividends-received deduction. G’s charitable contribution is limited to $9,400 as computed below. The excess of $5,600 ($15,000 – $9,400) may be carried over for 5 years.

Section 243 permits a corporation to deduct 50% of dividends received from a domestic taxable corporation of which it owns less than 20% of the stock, 65% of dividends received if the stock is 20% or more (but less than 80%) owned, and 100% of dividends received if the stock is 80% or more owned. In the case of dividends received from a less than 20%-owned corporation, the dividends-received deduction is limited to the lesser of 50% of dividends received or 50% of taxable income computed without regard to any NOL deduction, any capital loss carryback, or the dividends-received deduction itself. Thus, Wilmohr’s dividends-received deduction equals $40,000 ($80,000 dividends received × 50%) because the dividend payment is less than taxable income.

When figuring a current-year NOL, excess capital losses are not included.

Section 267 contains the constructive ownership rules of ownership of stock with respect to losses on the sale or trade of property between related taxpayers. An individual is considered to own stock owned by his or her brothers and sisters (whether by whole or half blood), spouse, ancestors, and lineal descendants [Sec. 267(c)(4)]. If a shareholder owns 50% or more in value of the stock of a corporation, (s)he is considered to own the stock the corporation owns in proportion to the value of the stock that (s)he owns in the corporation. Therefore, shareholder A constructively owns 60 shares (100 shares × 60%) of the stock Y owns in X. Also, shareholder A constructively owns the shares his relatives (father, sister, and daughter) own in X. As a result, shareholder A constructively owns 560 shares (200 + 100 + 90 + 110 + 60) in Corporation X.

A corporation’s capital losses are deductible only to the extent of capital gains, whether they are short- or long-term. A net capital loss is not deductible against ordinary income in the tax year incurred. It cannot produce or increase an NOL. Net capital loss (NCL) = CLs (ST + LT) – CG (ST + LT). Therefore, the net capital loss is $2,000 [($27,000 – ($15,000 + $10,000)]. When a capital loss is carried to another tax year, it is treated as a short-term loss regardless of its original characterization.

The charitable contribution deduction cannot exceed 25% of taxable income for the year. For this purpose, taxable income includes dividend income but is not affected by charitable deduction or the dividends-received deduction. Thus, before special deductions, XYZ has taxable income for the year of $220,000 [($900,000 gross receipts + $65,000 dividend income) – ($350,000 salaries + $395,000 operating expenses)]. The charitable contribution deduction for the year is $55,000 ($220,000 × 25%). This leaves $20,000 ($75,000 – $55,000) available as a carryover.

Schedule M-1 reconciles income or loss per books with income or loss per tax return.

Answer (A) is correct.
Section 172(c) defines a net operating loss as the excess of deductions over gross income, with certain modifications. One modification is that the dividends-received deduction is computed without regard to the 65% of taxable income limitation in Sec. 246(b). Thus, Tilden’s NOL is $72,500 as computed below.

Answer (B) is correct.
A capital loss that cannot be offset in the current year may be carried back 3 years and carried forward for up to 5 years. When a capital loss is carried to another tax year, it is treated as a short-term loss regardless of its original characterization.

The taxable income limit does not apply if a current NOL exists or an NOL results from the DRD.

Section 170(b)(2) limits the charitable contribution deduction to 25% of a corporation’s taxable income computed before the charitable contribution deduction, dividends-received deduction, and capital loss carryback. Gero’s base amount to which the percentage limitation should be applied in computing the charitable contribution deduction is $172,000 ($160,000 operating income + $10,000 contributions + $2,000 dividends).

Section 172(c) defines a net operating loss as the excess of deductions over gross income with certain modifications. One modification is that the dividends-received deduction is computed without regard to the 65% of taxable income limitation in Sec. 246(b). Thus, Lee’s NOL is $2,000 as computed below.

The dividends-received deduction is limited by, among other things, the recipient corporation’s adjusted taxable income unless an NOL results from the DRD.

Section 172(c) defines a net operating loss as the excess of deductions over gross income, with certain modifications. Lakeside may not deduct any of the charitable contributions. One modification is that the dividends-received deduction is computed without regard to the 65% of taxable income limitation in Sec. 246(b). Thus, Lakeside’s NOL is $122,500 as computed below.

Under Sec. 243(a) and (c), a corporation is allowed a deduction for 65% of dividends received from unaffiliated domestic corporations of which it owns at least 20% of the stock. Section 246(b) limits the dividends-received deduction to 65% of taxable income before inclusion of the dividends-received deduction, dividends-paid deduction, net operating loss deduction, capital loss carrybacks, and certain adjustments for extraordinary dividends. (Note this deduction is 50% of taxable income for dividends from less than 20%-owned corporations.) Sixty-five percent of Slow’s dividend income is $156,000. However, 65% of the taxable income before the dividends-received deduction is $149,500. This limit restricts the dividends-received deduction that can be claimed.

A related person relationship exists if the same person owns more than 50% in value of the outstanding stock of each S corporation.

Answer (D) is correct.
Section 1211 provides that a corporation may deduct capital losses only to the extent of capital gains (without regard to whether they are short- or long-term). Therefore, Rowley may deduct only $22,000 of its capital losses since capital gains are $22,000 ($10,000 short-term and $12,000 long-term). The $14,000 balance of the capital losses may be carried forward 5 years. Rowley’s total taxable income is

Answer (A) is correct.
Section 1211 provides that a corporation may deduct capital losses only to the extent of capital gains (without regard to whether they are short- or long-term). Therefore, Dowdy can deduct only $14,000 of its net long-term capital loss in the current year. The remaining $4,000 long-term capital loss will be carried back 3 years or carried forward to the 5 succeeding tax years.

Under Sec. 1211, a corporation’s capital losses are deductible only to the extent of capital gains, whether they are short- or long-term. A net capital loss is not deductible against ordinary income in the tax year incurred. It cannot increase a net operating loss. A corporation’s net capital loss (NCL) for a particular tax year may be carried back to each of the 3 preceding tax years and forward to the 5 succeeding tax years. No election to forgo the carryback is provided. The NCL must be used to the extent possible in the earliest applicable tax year. The oldest unused NCL is applied first.

The DRD is allowable for dividends received from foreign corporations if the distributing corporation is subject to U.S. federal income tax. The distributing corporation must also be at least 10% owned by the recipient domestic corporation, have income effectively connected with a trade or business in the U.S., and must not be a foreign personal holding company. An S corporation may not claim the DRD.

An NOL is any excess of deductions over gross income. A dividends-received deduction may produce or increase an NOL. A corporation is entitled to disregard the limitations on a dividends received deduction when calculating an NOL.

Section 1212(a)(1) provides that, if a corporation has a net capital loss, the capital loss may be carried back to each of the 3 preceding taxable years and forward to each of the 5 succeeding taxable years. The carryback or carryforward is treated as a short-term capital loss in each such taxable year.

Section 245 lists requirements that must be met for the dividends of a foreign corporation to qualify for the dividends-received deduction. These requirements include that the foreign corporation (1) not be a foreign personal holding company, (2) be subject to U.S. federal income taxation, (3) be 10% or more owned by the domestic corporation, and (4) have income from effectively connected business sources within the United States. For dividends received before 1987, prior law required the foreign corporation to have derived 50% or more of its gross income from effectively connected business sources within the U.S.

Section 172(c) defines a net operating loss as the excess of deductions over gross income, with certain modifications. One modification is that the dividends-received deduction is computed without regard to the Sec. 246(b) limitation of 50% of taxable income. Consequently, Wingate’s taxable income is computed as follows:

A corporation’s capital losses are deductible only to the extent of capital gains, whether they are short- or long-term. A net capital loss is not deductible against ordinary income in the tax year incurred. It cannot produce or increase an NOL. Net capital loss (NCL) = CLs (ST + LT) – CG (ST + LT). When figuring a current-year net capital loss, capital losses carried from other years are not included.

Under Sec. 170, charitable contributions made to qualified organizations and paid within the taxable year may be deducted from taxable income. A corporation’s charitable deduction is limited to 25% of taxable income computed before the charitable contribution deduction, capital loss carryback, and the dividends-received deduction. HOOS’s charitable contribution deduction for the year is $43,900, as computed below.

When applying the carryback, carryforward rules for corporate capital losses, the losses may be carried forward for 5 years, not 7 years.

Under Sec. 243(a), a small business investment company operating under the Small Business Investment Act of 1958 may deduct 100% of the dividends received from a domestic taxable corporation.

A corporation’s unappropriated retained earnings balance is computed on Schedule M-2 of Form 1120. The balance at the end of the year is the beginning balance; plus net income per books; minus distributions of cash, property, or stock. Other adjustments may be made as necessary. Task’s unappropriated retained earnings balance is as follows:

The loss on the sale of securities is already included in the net income per books amount. Thus, no further adjustment is needed.

Section 172(c) defines a net operating loss as the excess of deductions over gross income with certain modifications. One modification is that the dividends-received deduction is computed without regard to the Sec. 246(b) limitation of 65% of taxable income. Also, a deduction for a net operating loss carryover is not allowed in computing a current NOL. Consequently, Pack’s NOL is computed as follows:

Under Sec. 83(a), the employee includes in income the fair value of property received for services. Under Sec. 83(h), the employer is allowed a deduction for the amount the employee must include in income when the employee includes it in income. However, when property other than cash is distributed in exchange for services, the employer must recognize a gain on the deemed sale. Since the employees will include the $85,000 FMV of shares in income, Spice Corporation may deduct the $85,000. However, Spice Corporation must also recognize a $70,000 gain ($85,000 FMV – $15,000 adjusted basis) on the deemed sale.

Under Sec. 83(a), the employee includes in income the fair value of property received for services. Under Sec. 83(h), the employer is allowed a deduction for the amount the employee must include in income when the employee includes it in income. However, when property other than cash is distributed in exchange for services, the employer must recognize a gain on the deem

Section 172(c) defines a net operating loss as the excess of deductions over gross income with certain modifications. One of the modifications is that a deduction for a net operating loss carryover is not allowed in computing a current NOL. Furthermore, a deduction for charitable contributions is not allowed because it is limited to 25% of taxable income (and Muncie has a loss). Thus, Muncie’s NOL for the year is $58,000 ($425,000 gross income – $483,000 business expenses).

Section 1211 provides that a corporation may deduct capital losses only to the extent of capital gains. Therefore, Pipe Dream can only deduct $3,000 of its net long-term capital loss in the current year. The remaining $51,000 long-term capital loss will be carried back 3 years or carried forward to the 5 succeeding tax years. Therefore, taxable income is $51,000 ($49,000 plumbing services income + $2,000 interest income). The tax liability is $10,710, computed using the 21% flat rate (21% × $51,000).

Under Sec. 1212, a corporation may carry capital losses back to each of the 3 preceding taxable years and forward to each of the 5 succeeding taxable years. The capital loss that is carried back or forward is treated as a short-term capital loss in each such taxable year. Consequently, the capital loss carryover in Bell’s current-year tax return will be treated as a short-term capital loss and is deductible only against capital gains.

Holding stock in an unrelated domestic corporation implies less than 20% ownership. Therefore, Best Corp. is entitled to a dividends-received deduction equal to the lesser of (1) 50% of the dividends received ($100,000 dividends × 50% = $50,000) or (2) 50% of taxable income excluding any NOL deduction, any capital loss carryback, and the DRD itself [($100,000 dividends – $10,000 operating loss) × 50% = $45,000]. Hence, Best Corp. is entitled to a DRD of $45,000.

Section 1211 provides that a corporation may deduct capital losses only to the extent of capital gains (without regard to whether they are short- or long-term). Therefore, Glitz can deduct only $15,000 of its net long-term capital loss in the current year. The remaining $8,000 long-term capital loss will be carried back 3 years or carried forward to the 5 succeeding tax years.

If capital losses are carried from 2 or more years to the same year, the loss should be deducted from the earliest year first. When that loss is fully deducted, the loss from the next earliest year should be deducted.