Chrome Corporation, a calendar-year cash-basis taxpayer, made estimated tax paym

Question

Chrome Corporation, a calendar-year cash-basis taxpayer, made estimated tax payments of $400 each quarter in 2014, for a total of $1,600. Chrome filed its 2014 tax return in 2015 and the return showed a tax liability $2,100. At the time of filing, March 15, 2015, Chrome paid an additional $500 in Federal income taxes. How does the additional payment of $500 impact Chrome’s E & P? Select one:

a. Increase by $500 in 2014.

b. Increase by $500 in 2015.

c. Decrease by $500 in 2015.

d. Decrease by $500 in 2014.

Explanation / Answer

Payment of federal tax reduce the total profits that are freely distributable as dividend hence the additional amount paid of $ 500 will be a negative adjustment to E&P. So option d is correct.

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