Question

 In determining Blue Corporation’s current E& P for 2018, how should taxable income be adjusted as a result of the following transactions?

a.       A capital loss carryover from 2017, fully used in 2018

b.       Nondeductible meal expenses in 2018

c.       Interest on municipal bonds received in 2018.

d.       Nondeductible lobbying expenses in 2018.

e.       Loss on a sale between related parties in 2018.

f.        Federal income tax refund received in 2018.

Answer 1

 

a. A Capital loss carryover from 2017, fully used in 2018

Ans: It will be considered for calculation of taxable income. Taxable income will be reduced to the extent of loss carried from 2017.

b. Non deductible meal expenses in 2018.

Ans: These expenses should not be considred for determining taxable income. But for E & P of the company these expenses will be deducted from profits.

c. Interest on Municipal bonds received in 2018.

Ans: It will be added to profits/income of the company as other income/income from other sources.

d.Non deductible lobbying expenses in 2018.

Ans: These expenses should not be considred for determining taxable income. But for E & P of the company these expenses will be deducted from profits.

e. Loss on sale between related parties in 2018.

Ans: It will be allowed to deduct from income if the transactions are made at arms lenghth price. If transaction is not made at arms length price then profit/loss to be recalculated by using arms lenghth price & decide accordingly whether it comes profit/loss.

f. Fedeal income tax refund received in 2018.

Ans: It should not be considered.