Question

In 2020, Tyler Inc. had gross income from business operations of $500,000 and allowable business expenses of $625,000. Tyler also received $150,000 in dividends from Polk Corporation. Tyler owns 13% of Polk Corporation. What is the amount of Tyler's 2020 net operating loss?

Answer 1

Net operating loss = ($95,000)

Sec. 172(c) defines a net operating loss as the excess of deductions over gross income, with certain modifications. One modification is that the dividends-received deduction is computed without regard to the 80% of taxable income limitation in Sec. 246(b). Thus, Tilden's NOL is $95,000 as computed below.

Gross income from operations: $500,000
+Dividend income: $150,000
-: Operating expenses: ($625,000)
=Net income before dividends-received deduction $25,000

-: Dividends-received deduction
($150,000 × 80%) = ($120,000) + $25,000
=Net operating loss: ($95,000)