comprehensive problem C: 8-67 P and S Corporations have filed consolidated tax r

Question

comprehensive problem C: 8-67

P and S Corporations have filed consolidated tax returns for ten years. P and S use the

accrual method of accounting, and they use the calendar year as their tax year. P and S
report separate return taxable income (before any consolidation adjustments and eliminations,
the NOL deduction, the charitable contributions deduction, and the dividendsreceived
deduction) for the current year of $200,000 and $250,000, respectively. These
amounts include the following current year transactions and events:

Explanation / Answer

Charitable contributions for corporations differ from those allowed to individuals in three ways: (1) the timing of the deduction; (2) the amount of the deduction permitted for the contribution of certain nonmoney properties; and (3) the maximum deduction permitted in any given year. Accrual method of accounting corporations are able to deduct certain contributions that remain unpaid at year-end. Such an election is not available to individuals. A corporate taxpayer can deduct a larger amount for health-related and scientific- research properties that are donated from inventory than is permitted an individual taxpayer. A corporation's charitable contribution is limited to 10% of adjusted taxable income, which is different from the series of limits that apply to individuals.

Corporations are allowed a dividends-received deduction to partially or fully mitigate the effects of multiple taxation of corporate earnings. Dividends received by a domestic corporation from another domestic corporation (other than S corporations) are eligible for the special 70%, 80% or 100% deduction. Also ineligible for the dividends-received deduction are distributions that receive capital gain treatment

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