5-1 Project One

Please see the attached feedback my professor gave and revise the project to the best of your ability. I have also attached some responses that other students have done as well to help with the assignment. Thank you!

1120
U.S. Corporation Income Tax Return
Form
Department of the Treasury
Internal Revenue Service
A Check if:
1a Consolidated return
(attach Form 851)
b Life/nonlife consolidated return .
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2 Personal holding co.
(attach Sch. PH) .
For calendar year 2023 or tax year beginning
OMB No. 1545-0123
, 2023, ending
2023
, 20
Go to www.irs.gov/Form1120 for instructions and the latest information.
B Employer identification number
Name
SageGreen Computer Corporation
85-1234566
TYPE
Number, street, and room or suite no. If a P.O. box, see instructions.
OR
1234 Anywhere Blvd, Sun City, AZ 85351
PRINT
C Date incorporated
D Total assets (see instructions)
City or town, state or province, country, and ZIP or foreign postal code
3 Personal service corp.
$
(see instructions) .
Tax, Refundable Credits, and
Payments
Deductions (See instructions for limitations on deductions.)
Income
4 Schedule M-3 attached
E Check if: (1)
(2)
Initial return
(3)
Final return
(4)
Name change
Address change
$32,000,000
1a
Gross receipts or sales .
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1a
b
c
2
Returns and allowances . . . . . .
Balance. Subtract line 1b from line 1a . .
Cost of goods sold (attach Form 1125-A) .
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1b
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1c
2
$32,000,000
$20,360,000
3
4
5
Gross profit. Subtract line 2 from line 1c . .
Dividends and inclusions (Schedule C, line 23)
Interest
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3
4
5
$11,640,000
$65,000
$20,000
6
7
8
Gross rents . . . . . . . . . . . . . .
Gross royalties . . . . . . . . . . . . .
Capital gain net income (attach Schedule D (Form 1120)) .
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6
7
8
$0
$0
$18,000
9
10
11
Net gain or (loss) from Form 4797, Part II, line 17 (attach Form 4797)
Other income (see instructions—attach statement) . . . . . .
Total income. Add lines 3 through 10 . . . . . . . . . .
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9
10
11
$0
$0
$11,743,000
12
13
14
Compensation of officers (see instructions—attach Form 1125-E)
$0
$800,000
$0
15
16
17
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$0
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Salaries and wages (less employment credits)
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Repairs and maintenance
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12
13
14
Bad debts . . .
Rents . . . .
Taxes and licenses
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15
16
17
$0
$0
$0
18
19
20
Interest (see instructions) . . . . . . . . . . . . . . . . . . . . . . .
Charitable contributions . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation from Form 4562 not claimed on Form 1125-A or elsewhere on return (attach Form 4562) .
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18
19
20
$0
$40,000
$0
21
22
23
Depletion . . . . . . . .
Advertising
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Pension, profit-sharing, etc., plans
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21
22
23
$0
$0
$0
24
25
26
Employee benefit programs
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Energy efficient commercial buildings deduction (attach Form 7205) .
Other deductions (attach statement) . . . . . . . . . .
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24
25
26
$0
$0
$27,000
27
28
29a
Total deductions. Add lines 12 through 26 . . . . . . . . . . . . . . . . . . . .
Taxable income before net operating loss deduction and special deductions. Subtract line 27 from line 11. .
$0
Net operating loss deduction (see instructions) . . . . . . . . . . .
29a
$32,500
Special deductions (Schedule C, line 24) . . . . . . . . . . . . .
29b
27
28
$867,000
$10,876,000
30
Add lines 29a and 29b . . . . . . . . . . . . .
Taxable income. Subtract line 29c from line 28. See instructions
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29c
30
$32,500
$10,844,000
31
32
33
Total tax (Schedule J, Part I, line 11) . . . . . .
Reserved for future use . . . . . . . . . .
Total payments and credits (Schedule J, Part II, line 23)
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31
32
33
$2,277,240
34
35
36
Estimated tax penalty. See instructions. Check if Form 2220 is attached
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Amount owed. If line 33 is smaller than the total of lines 31 and 34, enter amount owed .
Overpayment. If line 33 is larger than the total of lines 31 and 34, enter amount overpaid
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$0
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34
35
36
Refunded
37
b
c
37
Sign
Here
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Enter amount from line 36 you want: Credited to 2024 estimated tax
$2,277,240
Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct, and
complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.
Signature of officer
Print/Type preparer’s name
Paid
Preparer
Use Only Firm’s name
Date
Preparer’s signature
May the IRS discuss this return
with the preparer shown below?
See instructions.
Yes
No
Title
Date
PTIN
Firm’s EIN
Firm’s address
For Paperwork Reduction Act Notice, see separate instructions.
Check
if
self-employed
Phone no.
Cat. No. 11450Q
Form 1120 (2023)
Page 2
Form 1120 (2023)
Schedule C
Dividends, Inclusions, and Special Deductions
(see instructions)
(a) Dividends and
inclusions
1
Dividends from less-than-20%-owned domestic corporations (other than debt-financed
stock) . . . . . . . . . . . . . . . . . . . . . . . .
2
Dividends from 20%-or-more-owned domestic corporations (other than debt-financed
stock) . . . . . . . . . . . . . . . . . . . . . . . .
3
Dividends on certain debt-financed stock of domestic and foreign corporations
4
Dividends on certain preferred stock of less-than-20%-owned public utilities
5
$65,000
(b) %
(c) Special deductions
(a) × (b)
50
$32,500
65
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See
instructions
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23.3
Dividends on certain preferred stock of 20%-or-more-owned public utilities .
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26.7
6
Dividends from less-than-20%-owned foreign corporations and certain FSCs
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50
7
Dividends from 20%-or-more-owned foreign corporations and certain FSCs
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65
8
Dividends from wholly owned foreign subsidiaries
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100
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Subtotal. Add lines 1 through 8. See instructions for limitations
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10
Dividends from domestic corporations received by a small business investment
company operating under the Small Business Investment Act of 1958 . . . . .
100
11
Dividends from affiliated group members .
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100
12
Dividends from certain FSCs
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100
13
Foreign-source portion of dividends received from a specified 10%-owned foreign
corporation (excluding hybrid dividends) (see instructions) . . . . . . . . .
14
Dividends from foreign corporations not included on line 3, 6, 7, 8, 11, 12, or 13
(including any hybrid dividends) . . . . . . . . . . . . . . . . .
15
Reserved for future use .
16a
Subpart F inclusions derived from the sale by a controlled foreign corporation (CFC) of
the stock of a lower-tier foreign corporation treated as a dividend (attach Form(s) 5471)
(see instructions) . . . . . . . . . . . . . . . . . . . . .
b
Subpart F inclusions derived from hybrid dividends of tiered corporations (attach Form(s)
5471) (see instructions) . . . . . . . . . . . . . . . . . . .
c
Other inclusions from CFCs under subpart F not included on line 16a, 16b, or 17 (attach
Form(s) 5471) (see instructions) . . . . . . . . . . . . . . . . .
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$65,000 instructions
Global Intangible Low-Taxed Income (GILTI) (attach Form(s) 5471 and Form 8992) .
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18
Gross-up for foreign taxes deemed paid
19
IC-DISC and former DISC dividends not included on line 1, 2, or 3
20
Other dividends
21
Deduction for dividends paid on certain preferred stock of public utilities
22
Section 250 deduction (attach Form 8993)
23
Total dividends and inclusions. Add column (a), lines 9 through 20. Enter here and on
$65,000
page 1, line 4 . . . . . . . . . . . . . . . . . . . . . .
Total special deductions. Add column (c), lines 9 through 22. Enter here and on page 1, line 29b . . . .
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100
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$32,500
100
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$32,500
Form 1120 (2023)
Page 3
Form 1120 (2023)
Schedule J
Tax Computation and Payment (see instructions)
Part I—Tax Computation
1
2
Income tax. See instructions . . . . . . . . .
Base erosion minimum tax amount (attach Form 8991) .
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1
2
3
4
5a
Corporate alternative minimum tax from Form 4626, Part II, line 13 (attach Form 4626) .
Add lines 1, 2, and 3 . . . . . . . . . . . . . . . . . . . .
Foreign tax credit (attach Form 1118) . . . . . . . . . . . . . . .
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5a
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3
4
b
c
d
Credit from Form 8834 (see instructions) . . . . . . .
General business credit (see instructions—attach Form 3800) .
Credit for prior year minimum tax (attach Form 8827) . . .
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e
6
7
Bond credits from Form 8912 . . .
Total credits. Add lines 5a through 5e
Subtract line 6 from line 4 . . . .
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6
7
8
9a
b
Personal holding company tax (attach Schedule PH (Form 1120)) .
Recapture of investment credit (attach Form 4255) . . . . .
Recapture of low-income housing credit (attach Form 8611) . .
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8
c
d
Interest due under the look-back method—completed long-term contracts (attach
Form 8697) . . . . . . . . . . . . . . . . . . . . . . .
Interest due under the look-back method—income forecast method (attach Form 8866)
9c
9d
e
f
g
Alternative tax on qualifying shipping activities (attach Form 8902)
Interest/tax due under section 453A(c) . . . . . . . . .
Interest/tax due under section 453(l) . . . . . . . . .
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9e
9f
9g
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Other (see instructions—attach statement)
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Total. Add lines 9a through 9z . . . . . . . . . . .
Total tax. Add lines 7, 8, and 10. Enter here and on page 1, line 31
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9z
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10
11
10
11
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$2,277,240
5b
5c
5d
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9a
9b
$2,277,240
Part II—Payments and Refundable Credits
12
Reserved for future use .
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13
Preceding year’s overpayment credited to the current year .
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12
13
14
15
16
Current year’s estimated tax payments
. . .
Current year’s refund applied for on Form 4466 .
Combine lines 13, 14, and 15 . . . . . .
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14
15 (
16
17
18
19
Tax deposited with Form 7004 . . . .
Withholding (see instructions) . . . .
Total payments. Add lines 16, 17, and 18 .
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17
18
19
20
Refundable credits from:
Form 2439 . . . . .
Form 4136 . . . . .
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20a
20b
21
Reserved for future use . . . . . .
Other (attach statement—see instructions)
Total credits. Add lines 20a through 20z .
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20c
20z
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21
22
23
Elective payment election amount from Form 3800 . . . . . . . . . . . .
Total payments and credits. Add lines 19, 21, and 22. Enter here and on page 1, line 33 .
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22
23
a
b
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$2,277,240
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$2,277,240
$2,277,240
Form 1120 (2023)
Page 4
Form 1120 (2023)
Schedule K
1
2
a
b
c
Other Information (see instructions)
Check accounting method: a
Cash
See the instructions and enter the:
Business activity code no.
Business activity Computer services
Product or service computers
b
Accrual
Yes
Other (specify)
c
No
3
Is the corporation a subsidiary in an affiliated group or a parent–subsidiary controlled group?
If “Yes,” enter name and EIN of the parent corporation
4
At the end of the tax year:
a
Did any foreign or domestic corporation, partnership (including any entity treated as a partnership), trust, or tax-exempt
organization own directly 20% or more, or own, directly or indirectly, 50% or more of the total voting power of all classes of the
corporation’s stock entitled to vote? If “Yes,” complete Part I of Schedule G (Form 1120) (attach Schedule G) . . . . . .
✔
b
Did any individual or estate own directly 20% or more, or own, directly or indirectly, 50% or more of the total voting power of all
classes of the corporation’s stock entitled to vote? If “Yes,” complete Part II of Schedule G (Form 1120) (attach Schedule G) .
✔
5
At the end of the tax year, did the corporation:
a
Own directly 20% or more, or own, directly or indirectly, 50% or more of the total voting power of all classes of stock entitled to vote of
any foreign or domestic corporation not included on Form 851, Affiliations Schedule? For rules of constructive ownership, see instructions
If “Yes,” complete (i) through (iv) below.
(i) Name of Corporation
(ii) Employer
Identification Number
(if any)
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7
(ii) Employer
Identification Number
(if any)
(iii) Country of
Organization
✔
(iv) Percentage
Owned in Voting
Stock
(iii) Country of
Incorporation
b Own directly an interest of 20% or more, or own, directly or indirectly, an interest of 50% or more in any foreign or domestic partnership
(including an entity treated as a partnership) or in the beneficial interest of a trust? For rules of constructive ownership, see instructions
If “Yes,” complete (i) through (iv) below.
(i) Name of Entity
✔
✔
(iv) Maximum
Percentage Owned in
Profit, Loss, or Capital
During this tax year, did the corporation pay dividends (other than stock dividends and distributions in exchange for stock) in
excess of the corporation’s current and accumulated earnings and profits? See sections 301 and 316 . . . . . . . .
If “Yes,” file Form 5452, Corporate Report of Nondividend Distributions. See the instructions for Form 5452.
If this is a consolidated return, answer here for the parent corporation and on Form 851 for each subsidiary.
At any time during this tax year, did one foreign person own, directly or indirectly, at least 25% of the total voting power of all
classes of the corporation’s stock entitled to vote or at least 25% of the total value of all classes of the corporation’s stock? .
For rules of attribution, see section 318. If “Yes,” enter:
(a) Percentage owned
and (b) Owner’s country
✔
✔
(c) The corporation may have to file Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign
Corporation Engaged in a U.S. Trade or Business. Enter the number of Forms 5472 attached
8
9
10
Check this box if the corporation issued publicly offered debt instruments with original issue discount . . . . . . .
If checked, the corporation may have to file Form 8281, Information Return for Publicly Offered Original Issue Discount Instruments.
$6,000
Enter the amount of tax-exempt interest received or accrued during this tax year $
Enter the number of shareholders at the end of the tax year (if 100 or fewer)
11
If the corporation has an NOL for the tax year and is electing to forego the carryback period, check here (see instructions) .
If the corporation is filing a consolidated return, the statement required by Regulations section 1.1502-21(b)(3) must be attached
or the election will not be valid.
12
Enter the available NOL carryover from prior tax years (do not reduce it by any deduction reported on page 1, line 29a) $
Form 1120 (2023)
Page 5
Form 1120 (2023)
Schedule K
13
Other Information (continued from page 4)
Are the corporation’s total receipts (page 1, line 1a, plus lines 4 through 10) for the tax year and its total assets at the end of the
tax year less than $250,000?
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Yes
No
✔
If “Yes,” the corporation is not required to complete Schedules L, M-1, and M-2. Instead, enter the total amount of cash
distributions and the book value of property distributions (other than cash) made during this tax year $
14
Is the corporation required to file Schedule UTP (Form 1120), Uncertain Tax Position Statement? See instructions
If “Yes,” complete and attach Schedule UTP.
.
.
.
.
✔
15a
b
Did the corporation make any payments that would require it to file Form(s) 1099? .
If “Yes,” did or will the corporation file required Form(s) 1099? . . . . . . .
.
.
.
.
.
.
.
.
✔
✔
16
During this tax year, did the corporation have an 80%-or-more change in ownership, including a change due to redemption of its
own stock?
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
✔
17
During or subsequent to this tax year, but before the filing of this return, did the corporation dispose of more than 65% (by value)
of its assets in a taxable, non-taxable, or tax deferred transaction? . . . . . . . . . . . . . . . . . .
✔
18
Did this corporation receive assets in a section 351 transfer in which any of the transferred assets had a fair market basis or fair
market value of more than $1 million? . . . . . . . . . . . . . . . . . . . . . . . . . . .
✔
19
During this corporation’s tax year, did the corporation make any payments that would require it to file Forms 1042 and 1042-S
under chapter 3 (sections 1441 through 1464) or chapter 4 (sections 1471 through 1474) of the Code? . . . . . . . .
Is the corporation operating on a cooperative basis?
. . . . . . . . . . . . . . . . . . . . . .
✔
✔
20
21
22
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
During this tax year, did the corporation pay or accrue any interest or royalty for which the deduction is not allowed under
section 267A? See instructions
If “Yes,” enter the total amount of the disallowed deductions $
✔
Does this corporation have gross receipts of at least $500 million in any of the 3 preceding tax years? (See sections 59A(e)(2) and (3).)
✔
If “Yes,” complete and attach Form 8991.
23
24
a
b
c
25
26
Did the corporation have an election under section 163(j) for any real property trade or business or any farming business in effect
during this tax year? See instructions . . . . . . . . . . . . . . . . . . . . . . . . . . .
Does the corporation satisfy one or more of the following? If “Yes,” complete and attach Form 8990. See instructions . . .
The corporation owns a pass-through entity with current, or prior year carryover, excess business interest expense.
The corporation’s aggregate average annual gross receipts (determined under section 448(c)) for the 3 tax years preceding the
current tax year are more than $29 million and the corporation has business interest expense.
The corporation is a tax shelter and the corporation has business interest expense.
Is the corporation attaching Form 8996 to certify as a Qualified Opportunity Fund?
. . . . . . . . . . . . .
If “Yes,” enter amount from Form 8996, line 15 . . . . . . . . . . . $
Since December 22, 2017, did a foreign corporation directly or indirectly acquire substantially all of the properties held directly or
indirectly by the corporation, and was the ownership percentage (by vote or value) for purposes of section 7874 greater than
50% (for example, the shareholders held more than 50% of the stock of the foreign corporation)? If “Yes,” list the ownership
percentage by vote and by value. See instructions . . . . . . . . . . . . . . . . . . . . . . .
Percentage: By Vote
By Value
27
At any time during this tax year, did the corporation (a) receive a digital asset (as a reward, award, or payment for property or
services); or (b) sell, exchange, or otherwise dispose of a digital asset (or a financial interest in a digital asset)? See instructions .
Is the corporation a member of a controlled group? . . . . . . . . . . . . . . . . . . . . . . .
If “Yes,” attach Schedule O (Form 1120). See instructions.
28
29
a
✔
✔
Corporate Alternative Minimum Tax:
Was the corporation an applicable corporation under section 59(k)(1) in any prior tax year?
.
.
.
.
.
.
.
.
.
.
.
✔
✔
✔
✔
If “Yes,” go to question 29b. If “No,” skip to question 29c.
b
c
30
a
Is the corporation an applicable corporation under section 59(k)(1) in the current tax year because the corporation was an
applicable corporation in the prior tax year? . . . . . . . . . . . . . . . . . . . . . . . . .
If “Yes,” complete and attach Form 4626. If “No,” continue to question 29c.
Does the corporation meet the requirements of the safe harbor method as provided under section 59(k)(3)(A) for the current tax
year? See instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
If “No,” complete and attach Form 4626. If “Yes,” the corporation is not required to file Form 4626.
Is the corporation required to file Form 7208 relating to the excise tax on repurchase of corporate stock (see instructions):
Under the rules for stock repurchased by a covered corporation (or stock acquired by its specified affiliate)? . . . . . .
b
c
Under the applicable foreign corporation rules? . . . . . . . . . . . . . . . . . . . . . . . .
Under the covered surrogate foreign corporation rules? . . . . . . . . . . . . . . . . . . . . . .
If “Yes” to either (a), (b), or (c), complete Form 7208, Excise Tax on Repurchase of Corporate Stock. See the Instructions for
Form 7208.
31
Is this a consolidated return with gross receipts or sales of $1 billion or more and a subchapter K basis adjustment, as described
in the instructions, of $10 million or more? . . . . . . . . . . . . . . . . . . . . . . . . . .
If “Yes,” attach a statement. See instructions.
✔
✔
✔
✔
✔
Form 1120 (2023)
Page 6
Form 1120 (2023)
Schedule L
Balance Sheets per Books
Beginning of tax year
(a)
(b)
Assets
1
Cash
.
.
.
2a
b
3
4
5
6
7
8
9
10a
b
11a
b
12
13a
b
14
15
Trade notes and accounts receivable .
Less allowance for bad debts . . .
Inventories . . . . . . . . .
U.S. government obligations
. . .
Tax-exempt securities (see instructions)
Other current assets (attach statement)
Loans to shareholders . . . . .
Mortgage and real estate loans . . .
Other investments (attach statement) .
Buildings and other depreciable assets
Less accumulated depreciation . . .
Depletable assets . . . . . . .
Less accumulated depletion . . . .
Land (net of any amortization) . . .
Intangible assets (amortizable only)
.
Less accumulated amortization . . .
Other assets (attach statement) . . .
Total assets
. . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
End of tax year
(c)
(d)
$10,815,000
(
)
(
)
$0
$0
(
)
(
)
(
)
(
)
(
)
(
)
$10,815,000
Liabilities and Shareholders’ Equity
16
17
18
19
20
21
22
23
24
25
26
27
28
Accounts payable . . . . . . . . .
Mortgages, notes, bonds payable in less than 1 year
Other current liabilities (attach statement) . .
Loans from shareholders . . . . . . .
Mortgages, notes, bonds payable in 1 year or more
Other liabilities (attach statement) . . . .
a Preferred stock . . . .
b Common stock . . . .
Additional paid-in capital . . . . . . .
Retained earnings—Appropriated (attach statement)
Retained earnings—Unappropriated . . .
Adjustments to shareholders’ equity (attach statement)
Less cost of treasury stock . . . . . .
Total liabilities and shareholders’ equity . .
Capital stock:
Schedule M-1
$0
(
$10,815,000
)
(
)
$10,815,000
Reconciliation of Income (Loss) per Books With Income per Return
Note: The corporation may be required to file Schedule M-3. See instructions.
1
Net income (loss) per books .
.
.
.
.
.
2
Federal income tax per books
.
.
.
.
.
3
Excess of capital losses over capital gains
4
Income subject to tax not recorded on books
this year (itemize):
5
.
a
b
c
Expenses recorded on books this year not
deducted on this return (itemize):
Depreciation . . . . $
Charitable contributions . $
27,000
Travel and entertainment . $
6
Add lines 1 through 5 .
Schedule M-2
1
2
3
4
.
.
.
.
.
.
.
$10,815,000
7
Income recorded on books this year
not included on this return (itemize):
6,000
Tax-exempt interest $
8
Deductions on this return not charged
against book income this year (itemize):
a Depreciation . . $
b Charitable contributions $
27,000 9
10,864,000 10
Add lines 7 and 8 . . . . . .
Income (page 1, line 28)—line 6 less line 9
$22,000
6,000
6,000
$10,858,000
Analysis of Unappropriated Retained Earnings per Books (Schedule L, Line 25)
Balance at beginning of year
Net income (loss) per books .
Other increases (itemize):
Add lines 1, 2, and 3 .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
0
$10,815,000
$10,815,000
5
6
7
8
Distributions: a Cash . .
b Stock
.
c Property .
Other decreases (itemize):
.
.
.
.
.
.
.
.
.
Add lines 5 and 6 . . . . . .
Balance at end of year (line 4 less line 7)
$0
$10,815,000
Form 1120 (2023)
1
SageGreen Computer Corporation: Reflection
Christine Sarkissian
Southern New Hampshire University
TAX-655: Federal Income Tax of Corporations and Partnerships
Professor Russell Jaques
September 1, 2024
2
SageGreen Computer Corporation: Reflection
Filling Accuracy
When completing Form 1120 for Part One of my project, I maintained filing accuracy and
completeness by employing several verification techniques. To ensure that the filled figures on the
tax form matched the source documents, I had to double-check with other source documents such
as the Comprehensive Statement of Income.
Further, instead of relying on the software’s results, I cross-checked all the calculations
manually to make sure all the figures were correct as evidenced by the data analysis. To ensure the
work was as accurate as possible, I went through the work three more times. Specifically, each had
the aim of evaluating whether there was anything that could be deemed inconsistent or missing so
that I could submit a much-improved tax form. This was critical in ensuring that the tax filing
process was not compromised.
Specific tax laws, regulations, and codes were deemed relevant to enable accurate
computation of tax liability so as not to understate or overstate the figures. This was important in
aspects such as compliance with the tax laws in order to avoid incurring penalties and interest.
Adherence to these regulations was also instrumental in explaining the decreased overall tax
liability for the firm. This measure helped to verify the correctness of all the deductions and credits
made. Through proper legal research on the taxation laws, I managed to prepare a Form 1120 that
complied with the law as well as enhanced the firm’s taxation standing.
Potential Variations in Preparation of Form 1120
The preparation of Form 1120 had various differences. These emerged mainly in the
process of comparing book income with taxable income in Schedule M-1. By going through this
reconciliation process, the distinction between financial accounting and tax reporting became
3
clear. In the case of SageGreen Computer Corporation, there is a significant difference between
the net income of $10,815,000 per books and the taxable income of $10,844,000. This led to a tax
of $ 2,227,240. This variance results from the difference between temporary and permanent
factors. Temporary differences that reversed over time included differences in the depreciation of
assets or the expense recognition for revenues under the book and tax systems.
On the other hand, there were permanent adjustments that remained due to other
differences between accounting and tax treatments. For example, meal cost is another item in the
list of permanent differences because it is restricted to 50% of its actual value for taxation. Interest
income from tax-exempt Arizona state bonds is fully included in book income, but not in taxable
income leading to another form of permanent difference. These various adjustments compounded
add up to $ 29,000 which makes the difference between book income and taxable income.
SageGreen Computer Corporation
Income Statement
For the Year Ended December 31
Gross Sales
Cost of Goods Sold
Gross Profit
$
Other Income:
Dividends
Interest
Tax-Exempt Interest
Capital Loss
32,000,000.00
20,360,000.00
11,640,000.00
65,000.00
20,000.00
6,000.00
(22,000.00)
Total Income
11,709,000.00
Expenses:
Salaries and Wages
Charitable Contributions
Meals
800,000.00
40,000.00
54,000.00
Total Expenses
894,000.00
Net Income Per Books
$
10,815,000.00
Address:
Employer Identification
Number (EIN):
Date Incorporated:
Company Information
1234 Anywhere Blvd, Sun City, AZ 85351
85-1234566
1/2/2022
Notes:
1. Meals are subject to 50% limitation.
2. Tax exempt interest of $6,000 is earned from Arizona state bonds.
3. Capital stock transactions:
a. 4,000 shares of Tech Inc. stock purchased February 1 for $100,000, sold April 1 for $113,000
b. 2,000 shares of WiresNThings stock purchased June 1 for $50,000, sold September 1 for $55,000
c. 3,000 shares of stock purchased April 1 for $140,000, sold September 1 for $100,000
Cost of Goods Sold notes:
Beginning inventory $0
Purchases during the year $17,000,000
Cost of labor $3,000,000
Other costs (depreciation) $360,000
Ending inventory $0
Ending Cash Balance will equal Ending Retained Earnings Balance.
ONE STUDENT’S RESPONSE:
I. Filing Accuracy
A.
Knowing whether or not a finished form 1120 is 100% accurate can be a tricky thing.
Double checking the work done, and the entries made are accurate, and that calculations are as
well, should be second nature to anyone filling out such a form. It does help that the there is a
build in check for the taxable income with the Schedule M-1 reconciliation of income, as the
value obtained after its completion, should be the same as the taxable income line on p.1 line
28 of the 1120. I will admit that it was a great help to me when filling out the form, as I had
made an input error on p.1, and only realized it when the values for line 28 and the M-1 didn’t
match. There are numerous websites with information and help concerning the filling out of
form 1120, but the best way to try and avoid errors is to use the instructional form provided by
the IRS for this purpose. It has a wealth of information, as well as references to applicable parts
of the tax code that can be looked up for reference, and the ever useful what’s new section to
help keep tax preparers informed of changes that should be noted that filing year (Instructions,
2022).
B.
It may seem easy to just take general rules at a quick face value when determining
which tax laws apply or are relevant to your current time filling out form, 1120 and it would be
easier still to just assume that what was true last year, or the year before, still holds today. In
our project, while it is intentionally kept simple, two examples of items that should be checked in
real life situations were Code § 103 – Interest on State and Local Bonds, and Code § 274 Disallowance of certain entertainment, etc., expenses. The corresponding items in this exercise
were basic, and adhered to the standard interpretation, but they list exceptions, special rules
and limitations that need to be considered for any real-world application for preparing form 1120
(§ 103, n.d.; § 274, n.d.). An example of this was some information I ran into doing research,
and it concerns a temporary enhanced deduction for meals for the 2021 and 2022 filing years;
to be specific, it concerns meals provided by restaurants. The gist of the deduction is, in an
effort to help provide relief to restaurants due to the effects on their business by COVID, The
Consolidated Appropriations Act (CAA) of 2021 allows for businesses to deduct 100% of the
cost of meals provided by restaurants, in an effort to entice more businesses to buy meals out
and support the restaurant industry. This is a minor note, but could be a good additional
deduction for businesses for this filing year (Eckert et al., 2022).
II. Potential Variations
A.
Reconciliation of SageGreen’s book income with that of the taxable income reported on
Form 1120, is a valuable asset to the IRS to detect any potential irregularities in a company’s
books, and they even have a 24-page document on audit techniques that cover various topics,
including the four general categories the differences fall into and timing (temporary) differences
(Schedule, n.d.). If the income value generated in the M-1, does not match the taxable income
on page 1 of Form 1120, then there is an error (possibly accidental, possibly nefarious), that
must be found and addressed.
B.
One of the more common differences, as mentioned above, are timing differences in
either revenue or expenses. These occur when revenue or an expense either are marked in the
company book, but not recorded for tax purposes, or visa-versa, when they are included for tax
purposes, but not listed on the companies’ books. These differences can be any number of
things, but a basic example, is say SageGreen Computers received a $200,000 fee in 2023 for
services provided for the next four years. On the books, this would be differed revenue, spread
evenly in $50,000 blocks over those next four years, but for tax purposes, since SageGreen
received the $200,000 in 2023, it must be included in the taxable income for 2023 tax return.
These will make the book values and the tax values diverge during these years, but can be
reconciled each year with the Schedule M-1. Although there can be many different variations
on the timing differences, the IRS recognizes four categories these differences can fall into;
•
Income recognized in the financial statements before it is taxable
•
Income that is taxable before it is recognized in the financial statements
•
Expenses recognized in the financials before they are deducted on a tax return
•
Expenses deducted on a tax return before they are included in the books
This means that the differences are either taxable or deductible, it just depends on what type it
is (Schedule, n.d.; Temporary, n.d.).
C.
Other than what was covered with the temporary differences, other cases where a
company’s books can differ from tax information are common. They can be anything from
income form a bond that is tax exempt (recognized in the books, not for taxes), most companies
income tax expenses on their books at the end of year, and deduct the value form their net
income per books, that needs to be added back in to calculate the taxable income per Form
1120, there could be depreciation differences (book value used straight line, tax value uses
MARCS), the company could have charitable contributions in excess of the 10% of the
aggregate taxable income, and others (Charitable, n.d.; What is, n.d.), and many more. There
are numerous, legitimate reasons that a company’s book values can differ from their taxable
calculated income, and it is an accountant’s job, to be aware of possible differences, and to
reasonably interoperate a proper course and plan to account for the differences.
References:
26 U.S. Code § 103 – Interest on State and local bonds. (n.d.). Cornell Law School. Retrieved
October 20, 2023 from https://www.law.cornell.edu/uscode/text/26/103
26 U.S. Code § 274 – Disallowance of certain entertainment, etc., expenses. (n.d.). Cornell Law
School. Retrieved October 20, 2023 from https://www.law.cornell.edu/uscode/text/26/274
Charitable Contribution Deductions. (n.d.). IRS.gov. Retrieved October 22, 2023 from
https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contributiondeductions
Eckert, S., Monaghan, M., Murphey, E., Keegan, J., Timm, J. (January 28, 2022). Expanded
meals and entertainment expense rules allow for increased deductions. Plante Moran.com.
https://www.plantemoran.com/explore-our-thinking/insight/2022/01/expanded-meals-andentertainment-expense-rules-allow-increased-deductions
Instructions for Form 1120. (2022). IRS.gov. https://www.irs.gov/instructions/i1120
Schedule M-1 Audit Techniques. (n.d.). IRS.gov. Retrieved October 22, 2023 from
https://www.irs.gov/pub/irs-tege/epche1003.pdf
Temporary Difference. (n.d.). Accountingguide.com. Retrieved October 21, 2023 from

Temporary Difference

What is the difference between book depreciation and tax depreciation? (n.d.).
AccountingCoach.com. Retrieved October 22, 2023 from
https://www.accountingcoach.com/blog/book-depreciation-tax-depreciation
ANTHER STUDENT’S RESPONSE:
Reflection
I have filled out Form 1120 for SageGreen Corporation and have attached the completed
form to this reflection. Unfortunately, there were several issues that I had found with the
information given, such as irregularities with the Cost of Goods calculations, lack of a
description of accounting methods, various omitted expenses, and no estimated tax payments. It
would be best to have SageGreen send over more information on the above items before filing so
that the form is able to be updated to better reflect SageGreen’s financial status for the best
possible return.
Filing Accuracy
There are several ways that I have worked to ensure that my work is free from error. I
had reached out to SageGreen and verified that the financial information received was accurate.
Unfortunately, I have not heard back about any additional information that would be used to fill
out more of the form, but I have managed to obtain confirmation that the information that was
given was verified up to date and accurate. Besides data verification, I have also used Schedule
M-1 to ensure that all items of income and expenses are appropriately categorized and included
on the tax return to avoid underreporting or overreporting income. This reconciliation of income
is a key step in ensuring accuracy and completeness of the tax return. I have also completed all
required schedules attached to Form 1120. I have also ensured that total assets are equal to total
liabilities and stockholder equity to ensure that the reported books are balanced.
The 1120 Form used for this tax return is from the latest tax year and is the most up to
date form available from the IRS. Besides the most up to date form, I used the Internal Revenue
Code (IRC). The IRC is the primary source of federal tax law in the United States. It outlines
the rules and regulations governing the taxation of corporations. Provisions within the IRC, such
as Section 11 (Tax on Corporate Income), Section 263 (Capital Expenditures), and Section 162
(Business Expenses), have a direct impact on Form 1120. In addition to the IRC, the IRS issues
regulations that provide guidance on how to apply the tax code. These regulations, including
Title 26 of the Code of Federal Regulations (CFR), offer more detailed rules and interpretations
for corporate tax reporting. Revenue rulings and revenue procedures provide official IRS
guidance on specific tax matters, including those relevant to corporate taxation. The Tax Cuts
and Jobs Act (TCJA) made significant changes to the U.S. tax code when it passed in 2017. It
introduced new provisions affecting corporate taxation, including lower corporate tax rates,
bonus depreciation, and changes in the treatment of business interest expense.
Potential Variations
It is essential to ensure that the federal income tax paid, as reported on Schedule M-1,
matches the amount calculated based on the corporate income tax rate and taxable income. Any
discrepancies between the calculated tax liability and the actual tax paid should be reconciled.
Differences between interest income and expense reported for book and tax purposes can also
occur. For instance, interest income on certain tax-exempt bonds or other investments might be
included in book income but excluded for tax purposes. Conversely, some interest expenses
might be subject to disallowance for tax purposes. Business expenses related to meals and
entertainment could also be subject to specific limitations and disallowances under tax law,
leading to differences between the expenses recorded for book and tax purposes.
Temporary differences can occur due to accruals and deferrals. For example, a
corporation might accrue an expense in its financial statements, but for tax purposes, this
expense is only deductible when it’s actually paid. This results in a temporary difference that
will reverse when the payment is made. Differences in depreciation and amortization methods
and lives between financial reporting and tax rules also often create temporary differences. For
example, accelerated depreciation methods used for tax purposes might result in a lower taxable
income compared to the straight-line depreciation used in financial statements.
Book differences versus tax differences in Form 1120 preparation involve discrepancies
in the recognition and treatment of income and expenses between a corporation’s financial
accounting (GAAP) and its tax accounting. These differences often result in variations in the
reported financial income and taxable income. For book purposes, revenue recognition may be
based on Generally Accepted Accounting Principles (GAAP), recognizing revenue when earned
or realizable. For tax purposes, revenue may be recognized when received, creating a difference
in timing for recognizing revenue, which affects taxable income. Under GAAP, corporations
establish allowances for doubtful accounts based on expected credit losses. For tax purposes,
deductions are allowed when debts are actually written off as uncollectible. These discrepancies
result in variations in reported income. Corporations may also use different depreciation
methods for financial reporting and tax purposes. For instance, GAAP might require straightline depreciation, while tax laws allow for accelerated depreciation methods. These differing
methods lead to variations in depreciation expenses and, subsequently, taxable income.
References
2022 instructions for Form 1120 – Internal Revenue Service. (n.d.-a).
https://www.irs.gov/pub/irs-pdf/i1120.pdf
Chapter 10 Schedule M-1 audit techniques table of contents. (n.d.-b).
https://www.irs.gov/pub/irs-tege/epche1003.pdf
Logan, D. S. (2023, July 24). Three differences between tax and book accounting that legislators
need to know. Tax Foundation. https://taxfoundation.org/research/all/federal/three-differencesbetween-tax-and-book-accounting-legislators-need-know/
Tax code, regulations, and Official Guidance. Internal Revenue Service. (n.d.).
https://www.irs.gov/privacy-disclosure/tax-code-regulations-and-official-guidance