Lanco Corporation, an accrual-method corporation, reported taxable income of $1,460,000 this year. Included in the computation of taxable income were
Lanco Corporation, an accrual-method corporation, reported taxable income of $1,460,000 this year. Included in the computation of taxable income were the following items:
\r\n• MACRS depreciation of $200,000. Depreciation for earnings and profits purposes is $120,000.
\r\n• A net capital loss carryover of $10,000 from last year.
\r\n• A net operating loss carryover of $25,000 from last year.
\r\n• $65,000 capital gain from the distribution of land to the company’s sole shareholder (see below).
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Not included in the computation of taxable income were the following items:
\r\n• Tax-exempt income of $5,000.
\r\n• Life insurance proceeds of $250,000.
\r\n• Excess current-year charitable contribution of $2,500 (to be carried over to next year).
\r\n• Tax-deferred gain of $20,000 on a like-kind exchange.
\r\n• Nondeductible life insurance premium of $3,500.
\r\n• Nondeductible interest expense of $1,000 on a loan used to buy tax-exempt bonds.
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Lanco accrued and paid federal income taxes this year of $306,600. Lanco’s accumulated E&P at the beginning of the year was $2,400,000.
\r\nDuring the year, Lanco made the following distributions to its sole shareholder, Luigi Nutt:
\r\n• June 30: $50,000
\r\n• September 30: Parcel of land with a fair market value of $75,000. Lanco’s tax basis in the land was $10,000. Luigi assumed an existing mortgage on the property of $15,000.
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