Corporate Tax Return Problem 2 Required: - Complete Blue Catering Service lac.'s (BCS) 2021 Form 1120, Schedule D, and Schedule G (if applicable) using the information provided below. - Form 4562 for depreciation is not required. Inelude the amount of tax depreciation given in the problem on the appropriate line on the first page of Form 1120 . - Forms 1125- and 1125 -E are not requuired. - If any information is missing, use reasonable assumptions to fill in the gaps. - The forms, schedules, and instructions can be found at the IRS website (www.irs.gov). The instructions can be helpful in completing the forms. Facts: Cara Siler, Janna Funk, and Valerie Cloward each own one-third of the common stock of Blue Catering Services lac. (BCS). BCS was incorporated on February 4, 2012. It has only one class of stock outstanding and operates as a C corporation for tax purposes. BCS caters all types of social events throughout southern Califorsia. - BCS is located at 540 Waverly Way, San Diego, California 92101. - BCS's Employer Identification Number is 38-4743474. - BCS's business activity is catering food and services. Its basiness activity code is 722300 . - The shareholders also work as officers for the corporation as follows: - Carn is the chief executive officer and president (Social Security number 231-548976). - Janna is the executive vice president and chief operating officer (Social Security number 798-56-3241). - Valerie is the vice president of finance (Social Security mumber 879-21-4536). - All officers dewote 100 percent of their time to the business and all officers are U.S. citizens. - BCS made payments that require it to file several Form 1099s for 2021. These forms will all be filed prior to the tax return. - BCS uses the acerual metbod of acsounting and has a calendar year-end. - BCS made four equal estimated tax payments of $8,750 each. Its tax liability last year was $41,000. If it has overpaid its federal tax liability, BCS woold like to receive a refund. - BCS paid a dividend of $30,000 to its shareholders on November 1. BCS had ample earnings and profits (E\&P) to absorb the distribution. Other Notes: 1. BCS's inventory-related purchases during 2021 were $360,000. It values its inventory based on cost using the FIFO inventory cost flow method. Assume the rules of $263A do not apply to BCS. 2. Of the $10,000 interest income, $1,250 was from a City of Irvine bond issued in 2017 , $1,750 was from an Oceanside city bond issued in 2020,$1,000 was from a U.S. Treasury bond, and the remaining $6,000 was from a money market account. 3. BCS's dividend income came from Clever Cakes Inc. (CC). BCS owned 10,000 shares of the stock in Clever Cakes at the beginning of the year. This represented 10 percent of SSM outstanding stock. 4. On October 1, 2021, BCS sold 1,000 shares of its CC stock for $25,000. It had originally purchased these shares on April 18, 2015, for $40,000. After the sale, BCS owned 9 percent of CC. 5. BCS's compensation is as follows: - Cara, $150,000 - Janna, $140,000 - Valerie, $130,000 - Other, \$530,000 6. BCS wrote off $25,000 in accounts receivable as uncollectible during the year. 7. BCS's tax depreciation was $28,000. None of the depreciation should be claimed on Form 1125A. 8. The $5,000 interest expense was from a business loan. 9. Other expenses include $6,000 for premiums paid on term life insurance policies for which BCS is the beneficiary. The policies cover the lives of Cara, Janna, and Valerie. The following is BCS's audited income statement for 2021: The following are BCS's audited balance sheets as of December 31, 2020, and December 31,2021 Fom 120 pari] Faga 2 Sehedule C 1 Dividen Dividends, Incluaions, and Special Deductions (see inatructiona) 3 Dividends on certah dobt-finanoed slock of danewin and foreign corporations 4 Dividends on certan prelemed siock of lass-than-20\%-cwred putic alities 5 Dividends on certain pretemed siock of 20 W-gr-mere-sared public ualies . 6 Divends from less-then-20\%-ownad foreign copoutons and cenain F9Cs 7 Dividends from 20%-or-more-owned foreign copoutons ard centah F8Cs 8 Dividends from wholy sured toseign subsidiaries - Subtotad. Add lines 1 thecugh R. See irsinustions for Iniasiens 6 Dividenda form domeatic carponatona roceivad by a amal buainaaa invatment company operatiog under the Smal Business inwes'nect Ast of 19 se 11 Dividends from afalated group merbers 12. Dividends from certain F8Cs 15. Foroign-aource portion of alidanda raseived tron a apecifed 10\%-awnad fersizn corporation (kacluding hy teid dividendi) (see indructons) 14 Dividenda trom farsign carparatana not incladad on line 2,4,7,8,11,12, or 13 Incleding ary hytrid dividends). 15 Recerved fer tuture vea 14a Ghpat F helusions derived trom the eale by a cortroled foreign copocation CFC of the abock of a lower-ier foraign cerperatien teated as a d viderid (attach Formial 6471] pee inatrustions) b Aubpat F inoluaiona dorivod from tybrid dividanda of Eerod corporaiona (atiach Fenm(a) [477) (eas histrectionel - Other induaiona from CFCa under aubeart F not included on fira 16a, 16b, ar 17 (attach Formist sa77) (leee instructions) 18 Groes-up tar soreign taves deemed poid to XGCISC and fomer DeSC dividends not included en line 1. 2, or 3 20 Other dikidends 24 Deducion for dividende paid an certan puterred stock of puble stites 22 Section 560 deduesion Gitiach Fom 1993 23 Total dividenda and irclusions. Add colum (a), fines 9 hrsugh 20 . Entar here ard on page 1, line 4 24 Total speelal deducbers. Add colmi il. ines 9 trough 22. Erter hew avd on paye 1. Ho 296 Form 1120 (2021) Page 3 Schedule d Tax Computation and Payment (see instructions) Part I-Tax Computation 1 Check if the corporation is a member of a controlled group (attach Schedule 0 (Form 11200. See instructions 2 Income tax. See instruations 3 Base erosion minimum tax amount (attsah Form 8991) 4 Add lines 2 and 3 . 5a Forcign tax credit (attach Form 111B) - b Credit from Form 8834 (see instructions) o General business credit (atteah Form 3800) d Credit for prior year minimum taxc (attach Form 8827) e Bond aredits from Form 8912 6 Total credits. Add lines 5 a through 50 7 Subtract line 6 from line 4 8 Personal holding oompary tax (attach Schedule PH (Fonm 1120y) - 9a Recapture of investment credit (attach Form 4255) - b Recapture of low-inoome housing crodit (attsah Form 8611) o Interest due under the look-back mathod-complated long-tenm contraats [attach Form 8697 ) - d Interest due under the look-back method-income forecast method (attach Form 886 ) - Aternative tax on qualifying shipping activities (attach Form B902) f Interest/tax due under soction 453A(c) and/or section 453(i) g Other (pee instructions - attech statement) 10 Total. Add lines 9a through 9g - 11 Total tax. Add lines 7,8 , and 10. 12 Reserved for future use Part III-Payments and Retundable Credits Forn 1120 po21] Sehedule K Other Information (condinued from pape 4) 12. Ave the corporation'a total reoupta fpoge 1, ine 1a, plun inea 4 through 10, far the trx year and ta tatal asaeta at the and of the las yeer less then $280,000 ? If "Yes," the carporaton is net required to complion Sichadilos L, M-1, and M-2. Instead, anter tha sotal amount af each If "Yes." corpiete and attach Schedule UTP. 15e Did the conporation make ary pirments in 2021 that woud requie it to fie Fomesh 5 pe9? b Ir "Yes." did or will the copoction Ale required Fonmis, 5099 ? 16 During this tas yaar, did the corpcraten have an BaN-on-mora chango in awnarahip, including a chango due to redamption at ita own stock? 17. During or aubascuent to thi tax yeer, but bafere tha fling of thia raturn, ded tha carparaton ciapose of more than 85K ky valua) of its assets in a taxable. nolr fexable, or tex defered brensactian? 16. Did the porporation roceive masta in a zection 151 tranafer in which ary of the trarafaned asseta had a far marhet basia or fair market valie of more then 81 elilion? 15. During the corporation'a tax year, cid the ecrpcraten make any paymenta that would roguire it to file Forna 1042 and 10425 under chaptee 3 fections 1341 through 1464 or chapter 4 foctons 1471 though 1474 of the Code? Is the cerperation operating in a osoperative bovis? 21 During the tes yaar, did the eorporation pay or aconus any inboreat or napaty for which the deduction ia not alowod under aoction 2a7A7 See inshustions If "Yes." anter the total aneut of the disallowed doducsiens 5 ard PO I " "Yes." eorpiete and attach Fom B981. 25. Did the corporation have an eloction under aastion 1.30 far any real property trade or buaincas or any faming business in efficet daring the tax yaar? See instuctions 2t Does the eerperation satisty one or more of the following? Seo histictions a The soporasion owrs a pass-throup enthy with ourent of prior yes caryover, eucess business interest expence. ounant tan year are mere than 356 millon and the corporation has busiress interect eupenee e. The sopporasion is a tax sheter and the eerperation has business intevest ecpenee, It "Yes." somplete and attach Form B980. 25 Is the cerperation atiaching Form E996 to certy as a Dualifed Oopertunty Fund? . If Wes." anter arount fum Form gees, lne 15 , 5 at Dives Docambor 22, ad13, did a foraign corporation divctly ar indirectly acquir aubalartally all af the propertiea held divestly or indinactly by the copoiation, and was the ownership percestage foy vote or valuey for purpoces of section 7874 guater fuan parsentage by vole and by valus See instructions Purmentagz Ry Vohe Py Yadua Schedule M-1 Reconciliation of Income (Loss) per Dooks With Income per Peturn Mote: The corponaien may be nequired so fle Sshadule M-2. Pee inatructiona. Corporate Tax Return Problem 2 Required: - Complete Blue Catering Service lac.'s (BCS) 2021 Form 1120, Schedule D, and Schedule G (if applicable) using the information provided below. - Form 4562 for depreciation is not required. Inelude the amount of tax depreciation given in the problem on the appropriate line on the first page of Form 1120 . - Forms 1125- and 1125 -E are not requuired. - If any information is missing, use reasonable assumptions to fill in the gaps. - The forms, schedules, and instructions can be found at the IRS website (www.irs.gov). The instructions can be helpful in completing the forms. Facts: Cara Siler, Janna Funk, and Valerie Cloward each own one-third of the common stock of Blue Catering Services lac. (BCS). BCS was incorporated on February 4, 2012. It has only one class of stock outstanding and operates as a C corporation for tax purposes. BCS caters all types of social events throughout southern Califorsia. - BCS is located at 540 Waverly Way, San Diego, California 92101. - BCS's Employer Identification Number is 38-4743474. - BCS's business activity is catering food and services. Its basiness activity code is 722300 . - The shareholders also work as officers for the corporation as follows: - Carn is the chief executive officer and president (Social Security number 231-548976). - Janna is the executive vice president and chief operating officer (Social Security number 798-56-3241). - Valerie is the vice president of finance (Social Security mumber 879-21-4536). - All officers dewote 100 percent of their time to the business and all officers are U.S. citizens. - BCS made payments that require it to file several Form 1099s for 2021. These forms will all be filed prior to the tax return. - BCS uses the acerual metbod of acsounting and has a calendar year-end. - BCS made four equal estimated tax payments of $8,750 each. Its tax liability last year was $41,000. If it has overpaid its federal tax liability, BCS woold like to receive a refund. - BCS paid a dividend of $30,000 to its shareholders on November 1. BCS had ample earnings and profits (E\&P) to absorb the distribution. Other Notes: 1. BCS's inventory-related purchases during 2021 were $360,000. It values its inventory based on cost using the FIFO inventory cost flow method. Assume the rules of $263A do not apply to BCS. 2. Of the $10,000 interest income, $1,250 was from a City of Irvine bond issued in 2017 , $1,750 was from an Oceanside city bond issued in 2020,$1,000 was from a U.S. Treasury bond, and the remaining $6,000 was from a money market account. 3. BCS's dividend income came from Clever Cakes Inc. (CC). BCS owned 10,000 shares of the stock in Clever Cakes at the beginning of the year. This represented 10 percent of SSM outstanding stock. 4. On October 1, 2021, BCS sold 1,000 shares of its CC stock for $25,000. It had originally purchased these shares on April 18, 2015, for $40,000. After the sale, BCS owned 9 percent of CC. 5. BCS's compensation is as follows: - Cara, $150,000 - Janna, $140,000 - Valerie, $130,000 - Other, \$530,000 6. BCS wrote off $25,000 in accounts receivable as uncollectible during the year. 7. BCS's tax depreciation was $28,000. None of the depreciation should be claimed on Form 1125A. 8. The $5,000 interest expense was from a business loan. 9. Other expenses include $6,000 for premiums paid on term life insurance policies for which BCS is the beneficiary. The policies cover the lives of Cara, Janna, and Valerie. The following is BCS's audited income statement for 2021: The following are BCS's audited balance sheets as of December 31, 2020, and December 31,2021 Fom 120 pari] Faga 2 Sehedule C 1 Dividen Dividends, Incluaions, and Special Deductions (see inatructiona) 3 Dividends on certah dobt-finanoed slock of danewin and foreign corporations 4 Dividends on certan prelemed siock of lass-than-20\%-cwred putic alities 5 Dividends on certain pretemed siock of 20 W-gr-mere-sared public ualies . 6 Divends from less-then-20\%-ownad foreign copoutons and cenain F9Cs 7 Dividends from 20%-or-more-owned foreign copoutons ard centah F8Cs 8 Dividends from wholy sured toseign subsidiaries - Subtotad. Add lines 1 thecugh R. See irsinustions for Iniasiens 6 Dividenda form domeatic carponatona roceivad by a amal buainaaa invatment company operatiog under the Smal Business inwes'nect Ast of 19 se 11 Dividends from afalated group merbers 12. Dividends from certain F8Cs 15. Foroign-aource portion of alidanda raseived tron a apecifed 10\%-awnad fersizn corporation (kacluding hy teid dividendi) (see indructons) 14 Dividenda trom farsign carparatana not incladad on line 2,4,7,8,11,12, or 13 Incleding ary hytrid dividends). 15 Recerved fer tuture vea 14a Ghpat F helusions derived trom the eale by a cortroled foreign copocation CFC of the abock of a lower-ier foraign cerperatien teated as a d viderid (attach Formial 6471] pee inatrustions) b Aubpat F inoluaiona dorivod from tybrid dividanda of Eerod corporaiona (atiach Fenm(a) [477) (eas histrectionel - Other induaiona from CFCa under aubeart F not included on fira 16a, 16b, ar 17 (attach Formist sa77) (leee instructions) 18 Groes-up tar soreign taves deemed poid to XGCISC and fomer DeSC dividends not included en line 1. 2, or 3 20 Other dikidends 24 Deducion for dividende paid an certan puterred stock of puble stites 22 Section 560 deduesion Gitiach Fom 1993 23 Total dividenda and irclusions. Add colum (a), fines 9 hrsugh 20 . Entar here ard on page 1, line 4 24 Total speelal deducbers. Add colmi il. ines 9 trough 22. Erter hew avd on paye 1. Ho 296 Form 1120 (2021) Page 3 Schedule d Tax Computation and Payment (see instructions) Part I-Tax Computation 1 Check if the corporation is a member of a controlled group (attach Schedule 0 (Form 11200. See instructions 2 Income tax. See instruations 3 Base erosion minimum tax amount (attsah Form 8991) 4 Add lines 2 and 3 . 5a Forcign tax credit (attach Form 111B) - b Credit from Form 8834 (see instructions) o General business credit (atteah Form 3800) d Credit for prior year minimum taxc (attach Form 8827) e Bond aredits from Form 8912 6 Total credits. Add lines 5 a through 50 7 Subtract line 6 from line 4 8 Personal holding oompary tax (attach Schedule PH (Fonm 1120y) - 9a Recapture of investment credit (attach Form 4255) - b Recapture of low-inoome housing crodit (attsah Form 8611) o Interest due under the look-back mathod-complated long-tenm contraats [attach Form 8697 ) - d Interest due under the look-back method-income forecast method (attach Form 886 ) - Aternative tax on qualifying shipping activities (attach Form B902) f Interest/tax due under soction 453A(c) and/or section 453(i) g Other (pee instructions - attech statement) 10 Total. Add lines 9a through 9g - 11 Total tax. Add lines 7,8 , and 10. 12 Reserved for future use Part III-Payments and Retundable Credits Forn 1120 po21] Sehedule K Other Information (condinued from pape 4) 12. Ave the corporation'a total reoupta fpoge 1, ine 1a, plun inea 4 through 10, far the trx year and ta tatal asaeta at the and of the las yeer less then $280,000 ? If "Yes," the carporaton is net required to complion Sichadilos L, M-1, and M-2. Instead, anter tha sotal amount af each If "Yes." corpiete and attach Schedule UTP. 15e Did the conporation make ary pirments in 2021 that woud requie it to fie Fomesh 5 pe9? b Ir "Yes." did or will the copoction Ale required Fonmis, 5099 ? 16 During this tas yaar, did the corpcraten have an BaN-on-mora chango in awnarahip, including a chango due to redamption at ita own stock? 17. During or aubascuent to thi tax yeer, but bafere tha fling of thia raturn, ded tha carparaton ciapose of more than 85K ky valua) of its assets in a taxable. nolr fexable, or tex defered brensactian? 16. Did the porporation roceive masta in a zection 151 tranafer in which ary of the trarafaned asseta had a far marhet basia or fair market valie of more then 81 elilion? 15. During the corporation'a tax year, cid the ecrpcraten make any paymenta that would roguire it to file Forna 1042 and 10425 under chaptee 3 fections 1341 through 1464 or chapter 4 foctons 1471 though 1474 of the Code? Is the cerperation operating in a osoperative bovis? 21 During the tes yaar, did the eorporation pay or aconus any inboreat or napaty for which the deduction ia not alowod under aoction 2a7A7 See inshustions If "Yes." anter the total aneut of the disallowed doducsiens 5 ard PO I " "Yes." eorpiete and attach Fom B981. 25. Did the corporation have an eloction under aastion 1.30 far any real property trade or buaincas or any faming business in efficet daring the tax yaar? See instuctions 2t Does the eerperation satisty one or more of the following? Seo histictions a The soporasion owrs a pass-throup enthy with ourent of prior yes caryover, eucess business interest expence. ounant tan year are mere than 356 millon and the corporation has busiress interect eupenee e. The sopporasion is a tax sheter and the eerperation has business intevest ecpenee, It "Yes." somplete and attach Form B980. 25 Is the cerperation atiaching Form E996 to certy as a Dualifed Oopertunty Fund? . If Wes." anter arount fum Form gees, lne 15 , 5 at Dives Docambor 22, ad13, did a foraign corporation divctly ar indirectly acquir aubalartally all af the propertiea held divestly or indinactly by the copoiation, and was the ownership percestage foy vote or valuey for purpoces of section 7874 guater fuan parsentage by vole and by valus See instructions Purmentagz Ry Vohe Py Yadua Schedule M-1 Reconciliation of Income (Loss) per Dooks With Income per Peturn Mote: The corponaien may be nequired so fle Sshadule M-2. Pee inatructiona