Posted: July 12th, 2016
Analyze the tax implications for the following case study. Apply the IRS codes to calculate a corporation’s net operating loss based on net income. Support your conclusions with reference to specific IRS codes and regulations.
In 2011, Star Corporation reports gross income of $200,000 (including $150,000 of profit from its operations and $50,000 in dividends from less-than-20%-owned domestic corporations) and $220,000 of operating expenses. Star’s 2009 taxable income (all ordinary income) was $75,000, on which it paid taxes of $13,750.
– What is Star’s net operating loss for 2011?
– What is the amount of Star’s tax refund Star carries back the 2011 net operating loss to 2009?
– Assume that Star expects 2012’s taxable income to be $400,000. Ignore the U.S. production activities deduction. What election could Star make to increase the tax benefit (if any)? Assume a 10% discount rate as a measure of the time value of money.
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