Lisa Cutter, Jeff McMullen, and Tina Woodbrook each own one-third of the common stock of Express Catering Services Inc. ECS was incorporated on March 17, 2010. It has only one class of stock outstanding and operates as a C-Corporation for tax purposes. ECS caters all types of social events throughout the tri-state area.

ECS is located at 257 West 55th Avenue, New York City, NY 10027. ECSs Employer Identification Number is 13-9823459. ECSs business activity is catering food services. Its business activity code is 722300. The shareholders also work as officers for the corporation as follows: Lisa is the Chief Executive Officer (CEO) and President (Social Security Number 356-87-4322). Jeff is the Chief Operating Officer (COO) and Executive Vice President (Social Security Number 284-58-4583). Tina is the Vice President of Finance (Social Security Number 423-84-2343). All officers devote 100 percent of their time to the business and all officers are U.S. citizens. ECS uses the accrual method of accounting and has a calendar year-end. ECS made four equal estimated tax payments of $25,000 each. Its tax liability last year was $110,000. If it has overpaid its federal tax liability, ECS would like to receive a refund. ECS paid a dividend of $30,000 to its shareholders on November 1. ECS had ample earnings and profits (E&P) to absorb the distribution. Financial Statements The following is ECSs audited income statement for 2020:

ECS Income Statement For year ending December 31, 2020 Income Revenue from sales $ 2,100,000 Sales returns and allowances (8,000) Cost of goods sold (350,000) Gross profit from operations 1,742,000 Other Income Capital loss $ (15,000) Dividend income 25,000 Interest income 10,000 Gross income $ 1,762,000 Expenses Compensation $ (950,000) Depreciation (10,000) Bad debt expense (15,000) Meals (3,000) Maintenance (6,000) Property taxes (11,000) State income taxes (45,000) Other taxes (44,000) Rent (60,000) Interest (5,000) Advertising (52,000) Professional services (16,000) Employee benefits (32,000) Supplies (5,000) Other expenses (27,000) Total expenses (1,281,000) Income before taxes 481,000 Federal income tax expense (150,000) Net income after taxes $ 331,000 The following are ECSs audited balance sheets as of January 1, 2020, and December 31, 2020.

ECS Balance Sheet

1/1/2020 12/31/2020 Assets Cash $ 180,000 $ 305,000 Accounts receivable 560,000 630,000 Allowance for doubtful accounts (60,000) (50,000) Inventory 140,000 169,000 U.S. government bonds 20,000 20,000 State and local bonds 120,000 120,000 Investments in stock 400,000 360,000 Fixed assets 140,000 200,000 Accumulated depreciation (50,000) (60,000) Other assets 20,000 21,000 Total Assets $ 1,470,000 $ 1,715,000 Liabilities and Shareholders' Equity Accounts payable $ 280,000 $ 240,000 Other current liabilities 20,000 18,000 Other liabilities 40,000 26,000 Capital stock 400,000 400,000 Retained earnings 730,000 1,031,000 Total liabilities and shareholders' equity $ 1,470,000 $ 1,715,000 Additional Notes ECSs inventory-related purchases during 2020 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 ECS. Of the $10,000 interest income, $1,250 was from a New York City bond issued in 2015, $1,750 was from a Manhattan Borough bond issued in 2014, $1,000 was from a U.S. Treasury bond, and the remaining $6,000 was from a money market account. ECSs dividend income came from Slatterys Inc. ECS owned 10,000 shares of the stock in Slatterys at the beginning of the year. This represented 10 percent of Slatterys outstanding stock. On October 1, 2020, ECS sold 1,000 shares of its Slatterys stock for $25,000. It had originally purchased these shares on April 18, 2013, for $40,000. After the sale, ECS owned 9 percent of Slatterys. ECSs compensation is as follows: Lisa, $150,000 Jeff, $140,000 Tina, $130,000 Other, $530,000 ECS wrote off $25,000 in accounts receivable as uncollectible during the year. ECSs tax depreciation was $28,000. None of the depreciation should be claimed on Form 1125A. The $5,000 interest expense was from a business loan. Other expenses include $6,000 for premiums paid on term life insurance policies for which ECS is the beneficiary. The policies cover the lives of Lisa, Jeff, and Tina.