1. Topco, Inc. reflected total U.S. federal taxable income of $85,000,000 for the 2019 tax year. Components of U.S. federal taxable income include: interest income of $1,500,000, tax depreciation of $14,500,000, tax amortization of $3,000,000 from Sec. 197 intangibles recently acquired and utilization of a 2015 federal net operating loss of $2,100,000. Topco, Inc.’s 2019 U.S. federal taxable income also included a deduction for interest expense of $55,200,000 on debt to related and third parties. Which one of the following statements is true?
   1. To compute Adjusted Taxable Income under Sec. 163(j) for the 2019 tax year, Topco, Inc. must exclude any deductible business interest expense reflected in its 2019 U.S. federal taxable Income.
   2. To compute Adjusted Taxable Income under Sec. 163(j) for the 2019 tax year, Topco, Inc. must exclude only deductible business interest expense from related party debt reflected in its 2019 U.S. federal taxable Income.
   3. Topco, Inc.’s Sec. 163(j) interest expense limitation for the 2019 tax year is equal to 70% of Adjusted Taxable Income, plus business interest income reflected in its 2019 U.S. federal taxable income.
   4. Topco, Inc. does not have to compute a Sec. 163(j) limitation for the 2019 tax year.

Answer rating: 100% (QA)

Solution The correct answer is B and C To compute Adjusted Taxable Income under Sec 163... View the full answer