Emerald Corporation, a calendar year C corporation, was formed and began operations on July 1, 2011. The following expenses were incurred during the first tax year (July 1 through December 31, 2011) of operations: Assuming a § 248 election, what is the Emerald's deduction for organizational expenditures for 2011?
A) $0.
B) $533.
C) $5,367.
D) $5,500.
E) None of the above.

Question

Emerald Corporation, a calendar year C corporation, was formed and began operations on July 1, 2011. The following expenses were incurred during the first tax year (July 1 through December 31, 2011) of operations:  Assuming a § 248 election, what is the Emerald's deduction for organizational expenditures for 2011?
A) $0. 
B) $533. 
C) $5,367. 
D) $5,500. 
E) None of the above.

Quizplus · Accepted Answer

Organizational expenditures incurred before the beginning of a taxpayer's active trade or business are generally amortizable over 180 months, beginning with the month the taxpayer begins active business operations. However, the § 248 election allows a taxpayer to deduct up to $5,000 of organizational expenditures in the year the business begins operations with the excess amortized over the remaining 180 months.

In this case, since Emerald Corporation began operations on July 1, 2011, it only had six months of active business operations in its first tax year. Therefore, it cannot amortize any organizational expenditures over the remaining 174 months, and it cannot deduct any organizational expenditures in excess of $5,000.

The total amount of organizational expenditures incurred in 2011 is $10,367. After the § 248 election, Emerald Corporation can deduct up to $5,000 of organizational expenditures in its first tax year. Therefore, the deductible amount of organizational expenditures for 2011 is $5,000, which is choice C.

Emerald Corporation, a Calendar Year C Corporation, Was Formed and Began