(TCO 2) Norm is the sole shareholder of Elk, Inc., a C corporation. Maxine is the
sole shareholder of Moose, Inc., an S corporation. Both businesses were started in
2008, and each business sustained a $10,000 capital loss for the year. Which of
the following statements is correct?
Norm can offset the $10,000 loss against his capital gains
for the year. If he has no capital gains, he may deduct a
$3,000 capital loss in 2008.
Elk, Inc., can carry the capital loss forward for up to five
Moose, Inc., can carry the capital loss forward for up to five
Maxine can offset the $10,000 loss against her capital gains
for the year. If she has no capital gains, she may deduct a
$10,000 capital loss in 2008.
None of the above
A C corporation cannot deduct a capital loss in the year incurred but is allowed to
carry such loss back 3 years and forward 5 years. Elk, Inc., was started in 2008, so
there is no carryback period. Therefore, the loss may be carried forward five
years. Individuals cannot carry capital losses back. If Maxine has any capital
gains, she can offset the capital loss against other capital gains. If she has a net
capital loss after offsetting the capital loss against capital gains, she may deduct
$3,000 of the loss in 2008.
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(TCO 2) Orange Corporation owns stock in White Corporation and has net
operating income of $800,000 for the year. White Corporation pays Orange a
dividend of $300,000. What amount of dividends received deduction may Orange
claim if it owns 18% of White stock (assuming Orange’s dividends received
deduction is not limited by its taxable income)?
None of the above.
The dividends received deduction depends upon the percentage of ownership by
the corporate shareholder. If Orange Corporation owns 18% of White Corporation,
Orange would qualify for a 70% deduction, or $210,000 in this case.
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