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ACC CORPORATE TAX RETURN PROBLEM - Toxic Tacos Inc.'s (TT)

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Question;CORPORATE TAX RETURN PROBLEMRequired:? Complete Toxic Tacos Inc.'s (TT) 2012 Federal Form 1120 and all applicable schedules using a tax preparation software program of your choice and the information provided below. The return with all schedules that would be required to be filed should be put in my dropbox in pdf format.? Form 4562 for depreciation is not required. Include the amount of tax depreciation given in the problem on the appropriate line on the first page of Form 1120.? Assume that TT does not owe any alternative minimum tax.? If any information is missing, use reasonable assumptions to fill in the gaps.? The forms, schedules, and instructions can be found at the IRS Web site (www.irs.gov). The instructions can be helpful in completing the forms if you do not use tax preparation software.Facts:Sal Monella, Tao Mane and Carne Asco each own one-third of the common stock of Toxic Tacos Inc. (TT). TT was incorporated on February 4, 2008. It has only one class of stock outstanding and operates as a C corporation for tax purposes. TT caters all types of social events throughout southern California.? TT is located at 1541 Dumpster Way, Huntington Beach, CA 92647? TT's Employer Identification Number is 38-7562491? TT's business activity is catering food and services. Its business activity code is 722300.? The shareholders also work as officers for the corporation as follows:o Sal is the chief executive officer and president (Social Security number 231-54-8976).o Tao is the executive vice president and chief operating officer (Social Security number 798-56-3241).o Carne is the vice president of finance (Social Security number 879-21-4536).? All officers devote 100 percent of their time to the business and all officers are U.S. citizens.? TT uses the accrual method of accounting and has a calendar year-end.? TT made four equal estimated tax payments of $20,000 each. Its tax liability last year was $70,000. If it has overpaid its federal tax liability, TT would like to receive a refund.? TT paid a dividend of $30,000 to its shareholders on November 1. TT had ample earnings and profits (E&P) to absorb the distribution.The following is TT's audited income statement for 2012:Toxic TacosIncome StatementYear Ending December 31, 2012Revenue from sales $2,000,000Cost of goods sold (Food) -400,000Gross profit from operations $1,600,000?Other income: Capital loss -20,000Dividend income 30,000Interest income 15,000Gross income $1,625,000????Expenses: Compensation -950,000Depreciation -10,000Bad debt expense -15,000Meals and entertainment -3,000Maintenance -6,000Property taxes -11,000State income taxes -45,000Other taxes -44,000Rent -60,000Interest -5,000Advertising -52,000Professional services -16,000Employee benefits -32,000Supplies -5,000Other expenses -27,000Total expenses -1,281,000Income before taxes 344,000Federal income tax expense -103,000Net income after taxes $ 241,000Notes:1. TT?s inventory-related purchases during 2012 were $360,000. It values its inventory based on cost using the FIFO inventory cost flow method. Assume the rules of ?263A do not apply to BCS.2. Of the $15,000 interest income, $2,000 was from a City of Huntington Beach bond that was used to fund public activities (issued in 2005), $1,000 was from a Costa Mesa city bond used to fund private activities (issued in 2004), $1,000 was from a U.S. Treasury bond, and the remaining $11,000 was from a money market account at Madoff Investments.3. TT?s dividend income came from Malo Menudo. (MM). TT owned 20,000 shares of the stock in Malo Menudo at the beginning of the year. This represented 10 percent of MM outstanding stock.4. On October 1 of the tax year, TT sold 2,000 shares of its MM stock for $25,000. It had originally purchased these shares on April 18, 2008, for $40,000. After the sale, TT owned 9 percent of MM.5. TT?s compensation is as follows:o Sal $150,000o Tao $150,000o Carne $150,000o Other $500,0006. TT wrote off $25,000 in accounts receivable as uncollectible during the year.7. TT used straight line depreciation to determine book income and accelerated depreciation for tax determination purposes. The tax depreciation was $28,000. None of the depreciation should be claimed on Form 1125A.8. The $5,000 interest expense was from a business loan.9. Other expenses include $6,000 for premiums paid on term life insurance policies for which TTis the beneficiary. The policies cover the lives of Sal, Tao, and Carne.The following are TT?s audited balance sheets as of January 1, 2012, and December 31, 2012Toxic TacosBalance SheetsJanuary 1st and December 31, 201220121-Jan 31-Dec????Assets Cash $?180,000 $ 324,000Accounts receivable 560,000 580,000Allowance for doubtful accounts -60,000 -50,000Inventory 140,000 150,000U.S. government bonds 20,000 20,000State and local bonds 120,000 120,000Investments in stock 400,000 360,000Fixed assets 140,000 160,000Accumulated depreciation -50,000 -60,000Other assets 20,000 21,000Total assets $1,470,000 $1,625,000Liabilities and Shareholders' Equity Accounts payable $ 280,000 $ 240,000Other current liabilities 20,000 18,000Other liabilities 40,000 26,000Capital stock 400,000 400,000Retained earnings 730,000 941,000Total liabilities and shareholders' equity $1,470,000 $1,625,000

 

Paper#38907 | Written in 18-Jul-2015

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