The following tax question relates to Schedule M-1 (M-3). A Schedule M-1 (M-3)\'

Question

The following tax question relates to Schedule M-1 (M-3). A Schedule M-1 (M-3)'s purpose is to increase the transparency of transactions in order to allow the IRS to analyze tax return data more efficiently in order to 1) identify returns containing the highest compliance risk, 2) to avoid examining returns with low compliance risk, and 3) to imporve the audit cycle time.

The tax return of Grates, Inc., a calendar year C corporation, reported a net operating loss of $260,000 in the current year. It has an expected marginal tax rate of 35 percent. Taxable income in the first preceding tax year was $50,000 and it was $10,000 in the second preceding tax year. The marginal rate in both of the carryback years is 15 percent. Answer the following two questions:

1. What is the Schedule M-1 (M-3) adjustment for the current tax year?
2. What is the deferred tax asset or liability balance?

Explanation / Answer

NET OPERATING LOSS=$2,60,000

MARGINAL TAX RATE=35%

TAXABLE INCOME IN FIRST PRECEDING TAX YEAR=$50,000

TAXABLE INCOME IN THE SECOND PRECEDING TAX YEAR=$10,000

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.