Using the facts from Problem C:8-68 below, calculate the tax liabilities of Flying Gator and T Corporations for 2019. How much larger (or smaller) would be the total of the two separate return tax liabilities if they were to file separate tax returns than the affiliated group’s consolidated return tax liability? What taxes are due (or refund available) if Flying Gator made $90,000 of estimated tax payments and T Corporation made $10,000 of estimated tax payments?

Data from Problem C:8-68

Flying Gator Corporation and its 100%-owned subsidiary, T Corporation, have filed consolidated tax returns for many years. Both corporations use the hybrid method of accounting and the calendar year as their tax year. During 2019 (which is the current year for this problem), they report the operating results as listed in Table C:8-2. Note the following additional information:

• Flying Gator and T Corporations are the only members of their controlled group.

• Flying Gator’s address is 2101 W. University Ave., Gainesburg, FL 32611. Its employer identification number is 38-2345678. Flying Gator was incorporated on June 11, 2007. Its total assets are $430,000.

• A $50,000 consolidated NOL carryover from the preceding year is available. The NOL is wholly attributable to Flying Gator.

• Flying Gator and T use the first-in, first-out (FIFO) inventory method. T began selling inventory to Flying Gator in the preceding year, which resulted in a $40,700 deferred intercompany profit at the end of the preceding year. Flying Gator is deemed to realize this profit in the current year because it uses the FIFO method. During the current year, T sells additional inventory to Flying Gator, realizing a $300,000 profit. At the end of the current year, Flying Gator holds inventory responsible for $45,100 of this profit.

• Flying Gator receives all its dividends from T. T receives all its dividends from a 60%- owned domestic corporation. All distributions are from E&P.

• Flying Gator receives all its interest income from T. T pays Flying Gator the interest on March 31 of the current year on a loan that was outstanding from October 1 of the preceding year through March 31 of the current year. Flying Gator and T did not accrue any interest at the end of the preceding year because they use the hybrid method of accounting. T pays $5,000 of its interest expense to a third party.

• Officer’s salaries are $80,000 for Flying Gator and $65,000 for T. These amounts are included in salaries and wages in Table C:8-2.

• Flying Gator’s capital losses include a $9,000 long-term loss on a sale of land to T in the current year. T holds the land at year-end.

• The corporations have no nonrecaptured net Sec. 1231 losses from prior tax years.

• Estimated tax payments for the current year are $100,000.

Transcribed Image Text:

TABLE C:8-2 Current Year Operating Results for Flying Gator and T Corporations (Problems C:8-65 and C:8-68) Income or Deductions Flying Gator Total $2,500,000 (1,500,000) $1,250,000 (700,000) $ 550,000 50,000 Gross receipts Cost of goods sold $3,750,000 (2,200,000) Gross profit Dividends $1,000,000 100,000 15,000 $1,550,000 150,000 15,000 20,000 25,000 1,000 (3,000) Interest Sec. 1231 gain Sec. 1245 gain Long-term capital gain (loss) Short-term capital gain (loss) 20,000 25,000 6,000 (3,000) (5,000) $1,110,000 $ 648,000 200,000 40,000 5,000 24,000 20,000 48,000 Total income $1,758,000 375,000 65,000 15,000 42,000 50,000 70,000 Salaries and wages 175,000 25,000 10,000 18,000 30,000 22,000 Repairs Bad debts Taxes Interest Charitable contributions Depreciation (other than that included in cost of goods sold) Other expenses 85,000 160,000 40,000 260,000 125,000 420,000 Total deductions $ 525,000 $ 637,000 $1,162,000 Separate return taxable income (before the NOL deduction and DRD) $ 585,000 2$ 11,000 $ 596,000