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Carryback a net operating loss for a corporation

1. The Hermann Company has made $150,000 before taxes each of the last
15 years, and it expects to make $150,000 a year before taxes in the future.
However, in 2001 the firm incurred a loss of $650,000. The firm will claim a tax
credit at the time it files its 2001 income tax return, and it will receive a check
from the U.S. Treasury. Show how it calculates this credit, and then indicate
the firm's tax liability for each of the next 5 years. Assume a 40% tax rate on all
income to ease the calculations.

Solution Preview

The carryback period for corporations changed in 2002 with retroactive provision for years ending in 2001. What had been two years became five years. The change occurred after many corporations would have already filed, but the law allowed for an amended filing to reflect the law change. The solution will use the new law although it could be that ...

Solution Summary

The solution presents a schedule showing how to carryback and carryforward a net operating loss to recover taxes paid in other years. Included is a discussion about recent law changes in the carryback period allowable for corporations. The solution also calculates the tax refund which would be receivable based on the facts in the problem.