Question

You are the controller for XYZ Company, a publicly traded corporation.  You have just prepared the corporation’s income tax return, and the return shows an overpayment of $373,280.

The members of the board of directors, none of whom have an accounting or tax background, have some specific questions about certain deductions that the corporation claimed on its return.

Required: Prepare a one page memorandum providing a BRIEF explanation of the significance of the following deductions, remembering that the board members are NOT accountants:

1) The Dividends Received Deduction (Form 1120, Line 29b)

2) The Depreciation Deduction (Form 1120, Line 20), where the tax return deduction of $77,000 was larger than the expense claimed in the financial statements of $61,000.

3) The Net Operating Loss Deduction (Form 1120, Line 29a)

Finally conclude your memo with an explanation of which of these the company should look to maximize.

Answer 1