In 2017, Ace Corporation reports gross income of $200,000 (including $150,000 of profit from its operations and

Question:

In 2017, Ace Corporation reports gross income of $200,000 (including $150,000 of profit from its operations and $50,000 in dividends from less-than-20%-owned domestic corporations) and $220,000 of operating expenses. Ace’s 2015 taxable income (all ordinary income) was $75,000, on which it paid taxes of $13,750.

a. What is Ace’s NOL for 2017?

b. What is the amount of Ace’s tax refund if Ace carries back the 2017 NOL to 2015?

c. Assume that Ace expects 2018’s taxable income to be $400,000. Ignore the U.S. production activities deduction. What election could Ace make to increase the tax benefit from its NOL? What is the dollar amount of the expected benefit (if any)? Assume a 10% discount rate as a measure of the time value of money.

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