Blond corporation also claims a dividends received

general rule. Blond Corporation also claims a dividends received deduction of $70,000 because a
net operating loss results when the Step 1 amount ($70,000) is subtracted from 100% of taxable
income before DRD ($50,000). Cherry Corporation, however, is subject to the taxable income
limitation and is allowed only $63,000 as a dividends received deduction.

55. a. For 2014, the deduction for organizational expenditures is $5,422 {$5,000 (amount that
can be immediately expensed) + [($43,000 – $5,000) ÷ 180 months  2 months]}. Except
for the expenses related to the printing and sale of the stock certificates, all other
expenses qualify for the § 248 amortization election. Thus, organizational expenditures
total $43,000 ($21,000 + $3,000 + $19,000). To qualify for the election, the expenditure
must be incurred before the end of the taxable year in which the corporation begins
business. Since the legal fees were incurred in 2014, the $19,000 qualifies as
organizational expenditures.
b. Organizational expenditures now total $52,000 ($21,000 + $3,000 + $28,000). Since
organizational expenditures exceed $50,000, the $5,000 first-year expensing limit is
reduced to $3,000 [$5,000 – ($52,000 – $50,000)]. Thus, the 2014 deduction for
organizational expenditures is $3,544 {$3,000 (amount that can be immediately
expensed) + [($52,000 – $3,000) ÷ 180 months  2 months]}.
56. All $41,500 of the expenditures are startup expenditures. Egret can elect under § 195 to currently
write off the first $5,000 and to amortize the remaining amount of such expenditures over a 180-
month period beginning with the month in which it begins business (i.e., July 1, 2014). Thus,
Egret’s deduction in 2014 for startup expenditures is $6,217 {$5,000 + $1,217 [($41,500 –
$5,000) ÷ 180 months  6 months]}. Egret makes the § 195 election simply by claiming the
deduction on its 2014 tax return. (If Egret decides to forgo the § 195 election, the $41,500 must
be capitalized and is deductible only when the corporation ceases to do business and liquidates.)
57. Purple Corporation:
Tax on—$65,000
Tax on $50,000 × 15% $ 7,500
Tax on $15,000 × 25% 3,750
Total tax $ 11,250
Azul Corporation:
Tax on—$290,000
Tax on $100,000 $ 22,250
Tax on $190,000 × 39% 74,100
Total tax $ 96,350
Pink Corporation:
Tax on—$12,350,000
Tax on $10 million $3,400,000
Tax on $2,350,000 × 35% 822,500
Total tax $4,222,500
Turquoise Corporation:
Tax on $19,000,000 × 35% $6,650,000
Teal Corporation (a personal sevice corporation):
Tax on $130,000 × 35% $ 45,500
58. Since Red and White are members of a controlled group of corporations, and since they did not
consent to an apportionment plan, the marginal tax brackets are apportioned equally to the two
entities. As such, Red Corporation’s income tax liability is $42,325 [($25,000 × 15%) + ($12,500
× 25%) + ($12,500 × 34%) + ($80,000 × 39%)], and White Corporation’s income tax liability is
$69,625 [($25,000 × 15%) + ($12,500 × 25%) + ($12,500 × 34%) + ($150,000 × 39%)]. (Note
that the combined tax liability of $111,950 for the two corporations is equal to the tax liability

they would have incurred if they were taxed as one corporation with their combined taxable
income of $330,000.)
59. Grouse, a large corporation, may use the prior year’s tax liability exception only for purposes of
its first estimated tax payment for 2014. Any shortfall from not using the current year’s (2014) tax
liability for the first installment must be paid in conjunction with the second installment payment.