X Corporation, Which Files Its Tax Return on a Cash

question 16

Multiple Choice

X Corporation, which files its tax return on a cash basis, incurred organizational costs (not to a related party) of $5,000 during its first year.$1,875 of these expenses were paid in the fourth month after the close of its taxable year.What is the maximum deduction the corporation is entitled to claim on its first tax return if that tax return is for a period of 1½ months and a proper election is made?

• A)$0, because organizational costs have an indefinite life
• B)$200
• C)$3,125
• D)$5,000

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Definitions:

Relied

The act of depending on or trusting in something or someone.

False Representation

The act of deliberately presenting false information or deceiving others about a fact, product, or situation.

Arm's Length Transaction

An arm's length transaction is a deal in which the buyers and sellers of a product act independently and have no relationship to each other, ensuring that both parties act in their own self-interest.

Special Duties

Obligations or responsibilities that are distinctive to a particular role, profession, or situation, often beyond ordinary duties.