CCS Corporate Tax Return Problem
Rachael Ray, Paula Deen and Gordon Ramsay each own one--third of the common stock of Celebrity Catering Services, Inc. (CCS). CCS is incorporated on February 2, 2009. It has only one class of stock outstanding and operates as a C corporation for tax purposes. CCS caters to all types of social events.
CCS is located at 540 Waverly Way Burbank, CA 91501
Its employer ID is 38--4743474
CCS's business activity is catering food services. Its business activity code is 722300.
The shareholders also work as officers for the corporation as follows:
- Rachael is the chief executive officer and president, (SS# 231--54--8976). Her salary this year is $200,000.
- Paula is the executive VP and Chief operating officer (SS#798--56--3241). Her salary this year is $140,000.
- Gordon is the VP of Finance (SS# 879--21--4536). His salary this year is $130,000.
All officers devote 100% of their time to the business and all of the officers are US citizens.
CCS uses the accrual method of accounting and has a calendar year--end.
CCS made four equal quarterly estimated tax payments of $20,000 each. Its tax liability last year was $70,000. If it has overpaid its federal tax liability, CCS would like to receive a refund.
CCS paid a dividend of $30,000 to its shareholders on November 1. CCS had ample earnings and profits (E&P) to absorb the distribution.
The following is CCS's income statement for 2012:
Income Statement
|
Income
|
|
|
|
Sales
|
|
$1,800,000
|
|
Sales returns and allowances
|
|
(5,000)
|
|
Net sales
|
|
1,795,000
|
|
Cost of goods sold
|
|
350,000
|
|
Gross profit
|
|
1,445,000
|
|
Capital loss
|
|
($15,000)
|
|
Dividend income
|
|
25,000
|
|
Interest income
|
|
10,000
|
|
Total income
|
|
$1,465,000
|
|
Expenses
|
|
|
|
Salaries--officers
|
$470,000
|
|
|
Salaries and wages - other
|
525,000
|
|
|
Bad Debt
|
15,000
|
|
|
Meals & Entertainment
|
3,000
|
|
|
Repairs and Maintenance
|
6,000
|
|
|
Property Taxes
|
13,000
|
|
|
State Income Tax
|
43,000
|
|
|
Other Taxes
|
44,000
|
|
|
Rent
|
30,000
|
|
|
Interest
|
5,000
|
|
|
Advertising
|
52,000
|
|
|
Professional Services
|
16,000
|
|
|
Supplies
|
5,000
|
|
|
Depreciation
|
10,000
|
|
|
Employee benefits Programs
|
32,000
|
|
|
Other Expenses
|
12,000
|
|
|
Total expenses
|
|
1,281,000
|
|
Net income before taxes
|
|
$184,000
|
|
Federal income taxes
|
|
[62,000]
|
|
Net income after taxes
|
|
$122,000
|
Notes:
1. CCS'S inventory--related purchases during 2012 were $360,000. It values its inventory based on cost using FIFO inventory cost flow method. Assume the rules of §263A do not apply to CCS.
2. Of the $10,000 interest income, $1,200 was from a City of Irvine bond that was used to fund public activities (issued in 2006), $1,900 was from an Oceanside City bond used to fund public activities (issued in 2005), $1,100 was from a US Treasury Bond and the rest was from a money market account.
3. CCS's dividend income came from Sinful Desserts, Inc. (SD) CCS owned 10,000 shares of stock in CC at the beginning of the year this represented 10% of SD's outstanding stock.
4. On October 1, 2012 CCS sold 1,000 shares of SD stock for $25,000. It had originally purchased these shares on April 18, 2009 for $40,000. After the sale CCS owns 9 percent of SD.
5. CCS wrote off $25,000 in accounts receivable as uncollectible during the year.
6. CCS regular tax depreciation was $28,000. None of the depreciation could be claimed on 1125A
7. The $5,000 interest was from a business loan.
8. Other expenses include $6,000 for premiums paid on term life insurance policies for which CCS is the beneficiary. The policies cover Rachael, Paula and Gordon.
Balance Sheet
|
Assets
|
1/1/2012
|
12/31/12
|
|
Cash
|
$180,000
|
$185,000
|
|
Trade and accounts receivables
|
560,000
|
570,000
|
|
Allowance for Doubtful Accounts
|
(60,000)
|
(50,000)
|
|
Inventories
|
140,000
|
150,000
|
|
U.S. government bonds
|
20,000
|
20,000
|
|
State & Local bonds
|
120,000
|
120,000
|
|
Investment In Stock
|
400,000
|
360,000
|
|
Prepaid federal income taxes
|
0
|
35,169
|
|
Property, plant and equipment
|
140,000
|
160,000
|
|
Accumulated depreciation
|
(50,000)
|
(60,000)
|
|
Other assets
|
20.000
|
15,831
|
|
Total Assets
|
$1,470,000
|
$1,506,000
|
|
Liabilities and Owners' Equity
|
|
|
|
Accounts payable
|
$280,000
|
$240,000
|
|
Other current liabilities
|
20,000
|
21,000
|
|
Other Liabilities
|
40,000
|
23,000
|
|
Capital stock
|
400,000
|
400,000
|
|
Retained earnings
|
730,000
|
822,000
|
|
Total Liabilities and Owners' Equity
|
$1,470,000
|
1,506,000
|
Required:
Complete Celebrity Catering Service Inc.'s (CCS) 2012 Form 1120, 1125--A, 1125--E and all related schedules--Schedules C, G, J, K, L, M--1, and M--2. Be sure to attach schedules for any line item which indicates one is required on the 1120.
FORM 4562 is not required. (Do not complete Form 4562 [depreciation calculation] since you do not have all the information).
If any information is missing, use reasonable assumptions to fill in the gaps and list those assumptions as an attachment.
The forms schedules and instructions can be found at www.irs.gov and download the necessary forms.