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XYZ is a calendar$-$year corporation that began business on January $1,2022.$ For the year, it reported the following information in its current$-$year audited income statement. Notes with important tax information are provided below. Use Exhibit $16-6.$

XYZ corporation Income statement For current year Book Income

Revenue from sales $ $44,200,000$

Cost of Goods Sold $(29,835,000)$

Gross profit $ $14,365,000$

Other income:

Income from investment in corporate stock $300,0001$

Interest income $36,8002$

Capital gains $($losses$)(4,000)$

Gain or loss from disposition of fixed assets $3,0003$

Miscellaneous income $50,000$

Gross Income $ $14,750,800$

Expenses:

Compensation $(7,542,000)4$

Stock option compensation $(242,000)5$

Advertising $(1,392,000)$

Repairs and Maintenance $(96,000)$

Rent expense $(43,000)$

Bad Debt expense $(62,000)6$

Depreciation $(1,925,000)7$

Warranty expenses $(112,000)8$

Charitable donations $(500,000)9$

Meals $(40,200)$

Goodwill impairment $(40,500)10$

Organizational expenditures $(45,500)11$

Other expenses $(182,000)12$

Total expenses $ $(12,222,200)$

Income before taxes $ $2,528,600$

Provision for income taxes $(400,000)13$

Net Income after taxes $ $2,128,600$

$1$Footnote $1$XYZ owns $30\%$ of the outstanding Hobble Corporation $($HC$)$ stock. Hobble Corporation reported $$1,000,000$ of income for the year. XYZ accounted for its investment in HC under the equity method, and it recorded its pro rata share of HC$\text{'}$s earnings for the year. HC also distributed a $$200,000$ dividend to XYZ$.$ For tax purposes, HC reports the actual dividend received as income, not the pro rata share of HC$\text{'}$s earnings.

$2$Footnote $2$Of the $$36,800$ interest income, $$9,200$ was from a City of Seattle bond, $$11,200$ was from a Tacoma City bond, $$10,200$ was from a fully taxable corporate bond, and the remaining $$6,200$ was from a money market account.

$3$Footnote $3$This gain is from equipment that XYZ purchased in February and sold in December $($i$.$e$.,$ it does not qualify as $1231$ gain$).$

$4$Footnote $4$This includes total officer compensation of $$2,500,000($no one officer received more than $$1,000,000$ compensation$).$

$5$Footnote $5$This amount is the portion of incentive stock option compensation that was expensed during the year $($recipients are officers$).$

$6$Footnote $6$XYZ actually wrote off $$37,500$ of its accounts receivable as uncollectible.

$7$Footnote $7$Tax depreciation was $$2,425,000.$

$8$Footnote $8$In the current year, XYZ did not make any actual payments on warranties it provided to customers.

$9$Footnote $9$XYZ made $$500,000$ of cash contributions to charities during the year

$10$Footnote $10$On July $1$ of this year, XYZ acquired the assets of another business. In the process, it acquired $$363,000$ of goodwill. At the end of the year, XYZ wrote off $$40,500$ of the goodwill as impaired.

$11$Footnote $11$XYZ expensed all of its organizational expenditures for book purposes. XYZ expensed the maximum amount of organizational expenditures allowed for tax purposes.

$12$Footnote $12$The other expenses do not contain any items with book$$tax differences.

$13$Footnote $13$This is an estimated tax provision $($federal tax expense$)$ for the year. Assume that XYZ is not subject to state income taxes.

Estimated tax information:

XYZ made four equal estimated tax payments totaling $$480,000($$$120,000$ per quarter$).$ For purposes of estimated tax liabilities, assume XYZ was in existence in $2022$ and that in $2022$ it reported a tax liability of $$668,000.$ During $2023,$ XYZ determined its taxable income at the end of each of the first three quarters as follows:

Quarter$-$end Cumulative taxable income $($loss$)$

First $ $505,000$

Second $ $1,305,000$

Third $ $1,850,000$

Finally, assume that XYZ is not a large corporation for purposes of estimated tax calculations.

Note: Do not round intermediate calculations. Round your answers to the nearest dollar amount.

EXHIBIT $16-6$ Net Operating Loss Carryback and Carryover Summary$*$

Tax Year NOL Originated Carrybacks Carryovers

Beginning before $2018$ Back two years.$**$ Can offset $100\%$ of taxable income before the NOL deduction in carryback years. Forward $20$ years. Can offset $100\%$ of taxable income before the NOL deduction.

Beginning after $2017$ and before $2021$ Back five years.$**$ Can offset up to $100\%$ of taxable income before the NOL deduction in carryback years. Carried forward indefinitely. Can offset up to $100\%$ of taxable income before the NOL deduction in tax years beginning before $2021.$ In tax years beginning after $2020,$ can offset up to $80$ percent of taxable income after deducting NOL carryovers from NOLs originating in tax years beginning before $2018.$

Beginning after $2020$ Not allowed. Carried forward indefinitely. Can offset up to $80$ percent of taxable income remaining after deducting NOL carryovers from NOLs originating in tax years beginning before $2018.*$In certain situations, when a corporation with a NOL experiences a

a$.$ Compute XYZ$\text{'}$s taxable income. $?$

b$.$ Compute XYZ$\text{'}$s income tax liability?