Current E&P Computation. Water Corporation reports $500,000 of taxable income fo

Question

Current E&P Computation. Water Corporation reports $500,000 of taxable income for the current year. The following additional information is available:

For the current year, Water reports an $80,000 long-term capital loss and no capital gains.

Taxable income includes $80,000 of dividends from a 10%-owned domestic corporation.

Water paid fines and penalties of $6,000 that were not deducted in computing taxable income.

In computing this year’s taxable income, Water deducted a $20,000 NOL carryover from a prior tax year.

Water claimed a $10,000 U.S. production activities deduction.

Taxable income includes a deduction for $40,000 of depreciation that exceeds the depreciation allowed for E&P purposes.

Assume a 34% corporate tax rate. What is Water’s current E&P for this year?

Explanation / Answer

Taxable income 500000 add: Dividend income -domestic securities 80000*70% 56000 NOL carryover 20000 US production activities 10000 Depreciation 40000 126000 Less: Long term capital loss 80000 fines and penalties 6000 fedaral income tax=500000* 34% 170000 (256000) Current earnings and profits 370000

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