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Tax Return Problems - Corporation Tax Return: Fall 2021 Required: . Complete Bell Construction Solutions Inc.'s (BCS) 2020 Form 1120, Pages 1 - 6, and The Book to Tax Reconciliation using the information provided below. Form 4562 for depreciation is not required. Include the amount of tax depreciation given in the problem on the appropriate line on the first page of Form 1120. Forms 1125-A and 1125-E are not required. 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: Carl Biler, Jack Zunk, and Valerie Coward each own one-third of the common stock of Bell Construction Solutions Inc. (BCS). BCS was incorporated on February 4, 2012. It has only one class of stock outstanding and operates as a corporation for tax purposes. BCS provides re-modeling and home construction solutions throughout Berks County, PA. BCS is located at 540 13th Street, Reading, PA 19612. . BCS's Employer Identification Number is 18-4743474. . BCS's business activity is construction services. Its business activity code is 152144. The shareholders also work as officers for the corporation as follows: o Carl is the chief executive officer and president (Social Security number 231-54- 8976). Other Notes: 1. BCS's 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 BCS. 2. Of the $10,000 interest income, $1,250 was from a City of Reading bond issued in 2017, $1,750 was from an Berks County bond issued in 2019, $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 Construction Inc. (CC). BCS owned 10,000 shares of the stock in Clever at the beginning of the year. This represented 10 percent of SSM outstanding stock. 4.On October 1, 2020, 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: . Carl, $150,000 Jack, $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 Carl, Jack, and Valerie. FINANCIAL STATEMENTS The following is BCS's audited income statement for 2020: BCS Income Statement For year ending December 31, 2020 Revenue from sales $ 1,800,000 Sales returns and allowances (5,000) Cost of goods sold (350,000) Gross profit from operations $ 1,445,000 Other income: Capital loss $ (15,000) Dividend income 25,000 Interest income 10,000 Gross income $ 1,465,000 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 184,000 Federal income tax expense (42,000) Net income after taxes $ 142,000 The following are BCS's audited balance sheets as of January 1, 2020, and December 31, 2020. 12/31/2019 12/31/2020 Assets Cash Accounts receivable Allowance for doubtful accounts Inventory U.S. government bonds State and local bonds Investments in stock Fixed assets Accumulated depreciation Other assets Total assets Liabilities and Shareholders' Equity Accounts payable Other current liabilities Other liabilities Capital stock Retained earnings Total liabilities and shareholders' equity $ 180,000 560,000 (60,000) 140,000 20,000 120,000 400,000 140,000 (50,000) 20,000 $1.470.000 $ 205,000 580,000 (50,000) 150,000 20,000 120,000 360,000 160,000 (60,000) 21.000 $1.506,000 $ 240,000 18,000 26,000 400,000 822.000 $1.506,000 $ 280,000 20,000 40,000 400,000 730.000 $1.470.000 Form 1120 OR 3 Income U.S. Corporation Income Tax Return OMB No. 1545-0123 Department of the Treasury For calendar year 2020 or tax year beginning 20 2020, ending Intemal Revenue Service Go to www.irs.gov/Form1120 for instructions and the latest information. 2020 A Check it: Name B Employer identification number 1a Consolidated retum (attach Form 851) Bell Construcion Solutions Inc. 18-4743474 TYPE b Lifeonlife consoli- Number, street, and room or suite no. If a P.O.box, see instructions. C Date incorporated dated return 2 Personal holding co. PRINT 540 13th Street February 4th, 2012 (attach Sch.PH) City or town, state or province, country, and ZIP or foreign postal code D Total assets (see instructions) 3 Personal service corp. (see instructions) Reading, PA 19612 4 Schedule M-3 attached E Check it: (1) Initial retum (2) Final return (3) Name change (4) Address change 1a Gross receipts or sales 1a b Returns and allowances 1b c Balance. Subtract line 1b from line 1a 1c 2 Cost of goods sold (attach Form 1125-A). 2 3 Gross profit. Subtract line 2 from line 1c. 4 Dividends and inclusions (Schedule C, line 23) 5 Interest 6 Gross rents 6 7 Gross royalties 7 8 Capital gain net income (attach Schedule D (Form 1120)) 9 Net gain or loss) from Form 4797, Part II, line 17 (attach Form 4797) 10 Other income (see instructions-attach statement) 10 11 Total income. Add lines 3 through 10 11 12 Compensation of officers (see instructions-attach Form 1125-E) 12 13 Salaries and wages (less employment credits) 13 14 Repairs and maintenance 14 15 Bad debts 15 16 Rents 16 17 Taxes and licenses 17 18 Interest (see instructions) 18 19 Charitable contributions 19 20 Depreciation from Form 4562 not claimed on Form 1125-A or elsewhere on return (attach Form 4562) 20 21 Depletion 21 22 Advertising 22 23 Pension, profit-sharing, etc., plans 23 24 Employee benefit programs 24 25 Reserved for future use 25 23 4 5 619 instructions for limitations on deductions.) Deductions (See in Tax, Refundable Credits, and Payments 25 Reserved for future use 25 26 Other deductions (attach statement) 26 27 Total deductions. Add lines 12 through 26 27 28 Taxable income before net operating loss deduction and special deductions. Subtract line 27 from line 11. 28 29a Net operating loss deduction (see instructions) 29a b Special deductions (Schedule C, line 24). 29b C Add lines 29a and 29b 29c 30 Taxable income. Subtract line 29c from line 28. See instructions 30 31 Total tax (Schedule J, Part 1, line 11) 31 32 2020 net 965 tax liability paid (Schedule J, Part II, line 12) 32 33 Total payments, credits, and section 965 net tax liability (Schedule J, Part III, line 23) 33 34 Estimated tax penalty. See instructions. Check if Form 2220 is attached 34 35 Amount owed. If line 33 is smaller than the total of lines 31, 32, and 34, enter amount owed 35 36 Overpayment. If line 33 is larger than the total of lines 31, 32, and 34, enter amount overpaid 36 37 Enter amount from line 36 you want: Credited to 2021 estimated tax Refunded 37 Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct Sign and complete. Declaration of preparer(other than taxpayer) is based on all information of which preparer has any knowledge. May the IRS discuss this return Here with the preparer shown below? See instructions. No Signature of officer Date Title Print/Type preparer's name Preparer's signature Paid Check it Preparer self-employed Firm's EIN Firm's address Phone no. For Paperwork Reduction Act Notice, see separate instructions. Cat No. 114500 Form 1120 (2020) Yes Date PTIN Use Only Firm's name Form 1120 (2020) Page 2 (a) Dividends and inclusions (b) % (c) Special deductions (a) (b) Schedule C Dividends, Inclusions, and Special Deductions (see instructions) 1 Dividends from less-than-20%-owned domestic corporations (other than debt-financed stock). 2 Dividends from 20%-or-more-owned domestic corporations (other than debt-financed stock). 50 65 See Instructions 3 Dividends on certain debt-financed stock of domestic and foreign corporations 4 23.3 Dividends on certain preferred stock of less-than-20%-owned public utilities Dividends on certain preferred stock of 20%-or-more-owned public utilities 5 26.7 6 Dividends from less-than-20%-owned foreign corporations and certain FSCs 50 7 65 8 100 Dividends from 20%-or-more-owned foreign corporations and certain FSCs Dividends from wholly owned foreign subsidiaries Subtotal. Add lines 1 through 8. See instructions for limitations Dividends from domestic corporations received by a small business investment company operating under the Small Business Investment Act of 1958 See instructions 9 10 100 11 Dividends from affiliated group members 100 12 100 100 14 See instructions 15 Dividends from certain FSCs 13 Foreign-source portion of dividends received from a specified 10%-owned foreign corporation (excluding hybrid dividends) (see instructions) Dividends from foreign corporations not included on line 3, 6, 7, 8, 11, 12, or 13 (including any hybrid dividends) - Section 965(a) inclusion 16a Subpart F inclusions derived from the sale by a controlled foreign corporation (CFC) of the stock of a lower-tier foreign corporation treated as a dividend (attach Form(s) 5471) (see instructions) b Subpart Finclusions derived from hybrid dividends of tiered corporations (attach Form(s) 5471) (see instructions) Other inclusions from CFCs under subpart F not included on line 15, 16a, 16b, or 17 (attach Form(s) 5471) (see instructions). 100 347) (see 17 Global Intangible Low-Taxed Income (GILTI) (attach Form(s) 5471 and Form 8992). 18 19 20 Gross-up for foreign taxes deemed paid IC-DISC and former DISC dividends not included on line 1, 2 or 3 Other dividends Deduction for dividends paid on certain preferred stock of public utilities Section 250 deduction (attach Form 8993) Total dividends and inclusions. Add column (a), lines 9 through 20. Enter here and on page 1, line 4 Total special deductions. Add column (c), lines 9 through 22. Enter here and on page 1, line 29b 21 22 23 24 Form 1120 (2020) Tax Return Problems - Corporation Tax Return: Fall 2021 Required: . Complete Bell Construction Solutions Inc.'s (BCS) 2020 Form 1120, Pages 1 - 6, and The Book to Tax Reconciliation using the information provided below. Form 4562 for depreciation is not required. Include the amount of tax depreciation given in the problem on the appropriate line on the first page of Form 1120. Forms 1125-A and 1125-E are not required. 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: Carl Biler, Jack Zunk, and Valerie Coward each own one-third of the common stock of Bell Construction Solutions Inc. (BCS). BCS was incorporated on February 4, 2012. It has only one class of stock outstanding and operates as a corporation for tax purposes. BCS provides re-modeling and home construction solutions throughout Berks County, PA. BCS is located at 540 13th Street, Reading, PA 19612. . BCS's Employer Identification Number is 18-4743474. . BCS's business activity is construction services. Its business activity code is 152144. The shareholders also work as officers for the corporation as follows: o Carl is the chief executive officer and president (Social Security number 231-54- 8976). Other Notes: 1. BCS's 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 BCS. 2. Of the $10,000 interest income, $1,250 was from a City of Reading bond issued in 2017, $1,750 was from an Berks County bond issued in 2019, $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 Construction Inc. (CC). BCS owned 10,000 shares of the stock in Clever at the beginning of the year. This represented 10 percent of SSM outstanding stock. 4.On October 1, 2020, 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: . Carl, $150,000 Jack, $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 Carl, Jack, and Valerie. FINANCIAL STATEMENTS The following is BCS's audited income statement for 2020: BCS Income Statement For year ending December 31, 2020 Revenue from sales $ 1,800,000 Sales returns and allowances (5,000) Cost of goods sold (350,000) Gross profit from operations $ 1,445,000 Other income: Capital loss $ (15,000) Dividend income 25,000 Interest income 10,000 Gross income $ 1,465,000 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 184,000 Federal income tax expense (42,000) Net income after taxes $ 142,000 The following are BCS's audited balance sheets as of January 1, 2020, and December 31, 2020. 12/31/2019 12/31/2020 Assets Cash Accounts receivable Allowance for doubtful accounts Inventory U.S. government bonds State and local bonds Investments in stock Fixed assets Accumulated depreciation Other assets Total assets Liabilities and Shareholders' Equity Accounts payable Other current liabilities Other liabilities Capital stock Retained earnings Total liabilities and shareholders' equity $ 180,000 560,000 (60,000) 140,000 20,000 120,000 400,000 140,000 (50,000) 20,000 $1.470.000 $ 205,000 580,000 (50,000) 150,000 20,000 120,000 360,000 160,000 (60,000) 21.000 $1.506,000 $ 240,000 18,000 26,000 400,000 822.000 $1.506,000 $ 280,000 20,000 40,000 400,000 730.000 $1.470.000 Form 1120 OR 3 Income U.S. Corporation Income Tax Return OMB No. 1545-0123 Department of the Treasury For calendar year 2020 or tax year beginning 20 2020, ending Intemal Revenue Service Go to www.irs.gov/Form1120 for instructions and the latest information. 2020 A Check it: Name B Employer identification number 1a Consolidated retum (attach Form 851) Bell Construcion Solutions Inc. 18-4743474 TYPE b Lifeonlife consoli- Number, street, and room or suite no. If a P.O.box, see instructions. C Date incorporated dated return 2 Personal holding co. PRINT 540 13th Street February 4th, 2012 (attach Sch.PH) City or town, state or province, country, and ZIP or foreign postal code D Total assets (see instructions) 3 Personal service corp. (see instructions) Reading, PA 19612 4 Schedule M-3 attached E Check it: (1) Initial retum (2) Final return (3) Name change (4) Address change 1a Gross receipts or sales 1a b Returns and allowances 1b c Balance. Subtract line 1b from line 1a 1c 2 Cost of goods sold (attach Form 1125-A). 2 3 Gross profit. Subtract line 2 from line 1c. 4 Dividends and inclusions (Schedule C, line 23) 5 Interest 6 Gross rents 6 7 Gross royalties 7 8 Capital gain net income (attach Schedule D (Form 1120)) 9 Net gain or loss) from Form 4797, Part II, line 17 (attach Form 4797) 10 Other income (see instructions-attach statement) 10 11 Total income. Add lines 3 through 10 11 12 Compensation of officers (see instructions-attach Form 1125-E) 12 13 Salaries and wages (less employment credits) 13 14 Repairs and maintenance 14 15 Bad debts 15 16 Rents 16 17 Taxes and licenses 17 18 Interest (see instructions) 18 19 Charitable contributions 19 20 Depreciation from Form 4562 not claimed on Form 1125-A or elsewhere on return (attach Form 4562) 20 21 Depletion 21 22 Advertising 22 23 Pension, profit-sharing, etc., plans 23 24 Employee benefit programs 24 25 Reserved for future use 25 23 4 5 619 instructions for limitations on deductions.) Deductions (See in Tax, Refundable Credits, and Payments 25 Reserved for future use 25 26 Other deductions (attach statement) 26 27 Total deductions. Add lines 12 through 26 27 28 Taxable income before net operating loss deduction and special deductions. Subtract line 27 from line 11. 28 29a Net operating loss deduction (see instructions) 29a b Special deductions (Schedule C, line 24). 29b C Add lines 29a and 29b 29c 30 Taxable income. Subtract line 29c from line 28. See instructions 30 31 Total tax (Schedule J, Part 1, line 11) 31 32 2020 net 965 tax liability paid (Schedule J, Part II, line 12) 32 33 Total payments, credits, and section 965 net tax liability (Schedule J, Part III, line 23) 33 34 Estimated tax penalty. See instructions. Check if Form 2220 is attached 34 35 Amount owed. If line 33 is smaller than the total of lines 31, 32, and 34, enter amount owed 35 36 Overpayment. If line 33 is larger than the total of lines 31, 32, and 34, enter amount overpaid 36 37 Enter amount from line 36 you want: Credited to 2021 estimated tax Refunded 37 Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct Sign and complete. Declaration of preparer(other than taxpayer) is based on all information of which preparer has any knowledge. May the IRS discuss this return Here with the preparer shown below? See instructions. No Signature of officer Date Title Print/Type preparer's name Preparer's signature Paid Check it Preparer self-employed Firm's EIN Firm's address Phone no. For Paperwork Reduction Act Notice, see separate instructions. Cat No. 114500 Form 1120 (2020) Yes Date PTIN Use Only Firm's name Form 1120 (2020) Page 2 (a) Dividends and inclusions (b) % (c) Special deductions (a) (b) Schedule C Dividends, Inclusions, and Special Deductions (see instructions) 1 Dividends from less-than-20%-owned domestic corporations (other than debt-financed stock). 2 Dividends from 20%-or-more-owned domestic corporations (other than debt-financed stock). 50 65 See Instructions 3 Dividends on certain debt-financed stock of domestic and foreign corporations 4 23.3 Dividends on certain preferred stock of less-than-20%-owned public utilities Dividends on certain preferred stock of 20%-or-more-owned public utilities 5 26.7 6 Dividends from less-than-20%-owned foreign corporations and certain FSCs 50 7 65 8 100 Dividends from 20%-or-more-owned foreign corporations and certain FSCs Dividends from wholly owned foreign subsidiaries Subtotal. Add lines 1 through 8. See instructions for limitations Dividends from domestic corporations received by a small business investment company operating under the Small Business Investment Act of 1958 See instructions 9 10 100 11 Dividends from affiliated group members 100 12 100 100 14 See instructions 15 Dividends from certain FSCs 13 Foreign-source portion of dividends received from a specified 10%-owned foreign corporation (excluding hybrid dividends) (see instructions) Dividends from foreign corporations not included on line 3, 6, 7, 8, 11, 12, or 13 (including any hybrid dividends) - Section 965(a) inclusion 16a Subpart F inclusions derived from the sale by a controlled foreign corporation (CFC) of the stock of a lower-tier foreign corporation treated as a dividend (attach Form(s) 5471) (see instructions) b Subpart Finclusions derived from hybrid dividends of tiered corporations (attach Form(s) 5471) (see instructions) Other inclusions from CFCs under subpart F not included on line 15, 16a, 16b, or 17 (attach Form(s) 5471) (see instructions). 100 347) (see 17 Global Intangible Low-Taxed Income (GILTI) (attach Form(s) 5471 and Form 8992). 18 19 20 Gross-up for foreign taxes deemed paid IC-DISC and former DISC dividends not included on line 1, 2 or 3 Other dividends Deduction for dividends paid on certain preferred stock of public utilities Section 250 deduction (attach Form 8993) Total dividends and inclusions. Add column (a), lines 9 through 20. Enter here and on page 1, line 4 Total special deductions. Add column (c), lines 9 through 22. Enter here and on page 1, line 29b 21 22 23 24 Form 1120 (2020)