1120 Tally, Inc. Case Study Facts: Using the Tax Application

Tally, Inc. Case Study Facts: Introduction

After the last merge, you will enter several descriptions to allow the whitepaper detail to print the same schedules as in the Master return. These descriptions either do not have a TCC number or do not require a TCC number. You will find Enter notations directing you to enter each required description.

Recompute the tax return and verify the tax return is in balance.

  1. Select Compute > Full Recompute from the menu.
  2. Verify that the return is in balance. Select Tax Forms > Federal > 1120 Tax Summary. There should be no differences.

Return and Print Options

Suppress the page numbers when printing should be selected.

  1. Select Organizer > Quick Track > Return and Print Options > Basic Options.
  2. Under the Every Page Print Options section, select Suppress Page Number.
  3. To automatically calculate retained earnings, select Organizer > Quick Track > Return and Print Options > Page 1 - 5 Options.
  4. Under the 1120 U.S. Corporation Options section, select the check box: Automatically calculate ending unappropriated retained earnings.
  5. To select accrual options, select Organizer > Quick Track > Return and Print Options > Accrual Options.
  6. Scroll down to the State Tax Accrual section.
  7. Enter $11,000,000 for the Current year book state tax expense.

Other Information - Questions

  1. Select Quick Track > Entity Information.
  2. Enter the following information:

    Method of accounting
    (Return Information tab)

    Accrual

    Principal Business Code451110
    Principal Business Activity

    Retailer

    Product or Service

    Sporting Goods

  3. Select Quick Track > Sch K Questions.
  4. For Ownership of Other Corporations not included on Form 851, answer Yes to the question: …50% or more of the total voting power of all classes of stock entitled to vote of any foreign or domestic corporation…
  5. Click the button labeled If yes, provide detail.
  6. On the next screen, enter Moon Dreams, Inc. as the Name.
  7. Enter the following:
    EIN

    56-2365894

    Percentage Owned

    70.00

    Country of
    Organization

    United States

  8. Now click the previous button on the toolbar to return to where you were before you clicked the If yes, provide detail button.
  9. Under Foreign Ownership, select Yes to the question about 25% ownership of all stock.
  10. Enter that one of the owners lives in Germany and owns 30% of the voting rights to the company’s stock.

Schedule N Questions

During 2019, the corporation had an interest in a financial account in Germany.

  1. Select Organizer > General Information > Questions > Schedule N.
  2. Scroll down to the Financial Account in the Foreign Country section.
  3. Answer Yes to the question about authority over a financial account.
  4. Select Germany for the name of the foreign country.

Corporation Owns 50% of Stock

  1. Select Organizer > General Information > Questions > Schedule K.
  2. You should have entered this already so verify that the information is correct:
    Name

    Moon Dreams, Inc.

    EIN

    56-2365894

    Percentage Owned

    70%

Paid Preparer Information

  1. Select Organizer > General Information > Paid Preparer Information/ERO Information.
  2. Select the check box to suppress the paid preparer information.

Income

  1. Select Quick Track > Income.

    OR

    Select Income and Deductions > Income.
  2. Verify the following for gross receipts: $1,200,000,000
  3. Verify Dividend Income from Schedule C. Click Schedule C Dividends > Dividend Income.
  4. Verify the following for dividends from 20% or more owned corporations subject to 80% deduction: 40,000.
  5. Enter the description of Dividend Income.
  6. Click the Previous button to return to the Income Organizer. Enter the following for interest on US obligations: 2,000.
  7. Verify the following for other interest income: 90,000.
  8. Scroll down to verify the following:
    • Capital Gain Income: 17,000
    • 4797 Gain or Loss: 41,000
  9. For Other Income, verify miscellaneous income: 30,000.

Cost of Goods Sold

  1. Select Income and Deductions > COGS/COOPS.
  2. Verify the following information:
    Beginning Inventory$ 5,905,000
    Purchases

    $ 858,145,000

    COGS - Depreciation

    $ 3,718,900

    Other Costs - (Miscellaneous
    other cost of goods sold

    $ 144,376,500

    Ending Inventory

    $ 8,150,000

  3. For the method of inventory valuation, verify that Lower of cost or Market is checked.
  4. Verify that Yes is selected for The rules of section 263A apply to this corporation.
  5. Verify that No is selected for There was no change in determining quantities, cost, or valuations between the opening and closing inventory amounts.

Officer Information

  1. Select Income and Deductions > Deductions > Officers Compensation > Individual Officers > Add new Officer.
  2. Enter the officer information:
    NameJoseph StarJohn SandersKathryn Smith
    Address4569 Webster Street
    Chicago, IL 60614    		8909 Park Blvd
    Chicago, IL 60649    		1562 Downing
    Grove, IL 65489
    SSN123-45-6789456-45-8565548-85-5666
    TitleChairmanVice PresidentPresident
    % of time devoted
    to business    		 100%100%100%
    % of corp. common
    stock owned    		 20% 20% 20%
    Amount of
    compensation    		 $ 600,000 $ 400,000$ 775,000

Deductions

  1. Select Income and Deductions > Deductions > Detail.
  2. Verify the following:
    • Compensation of Officers: 1,775,000
    • Salaries and Wages: 3,900,000
  3. Change the repair amount from 2,200 to 4,200:
    • Repairs: 4,200
  4. Enter Repairs as the Description.
  5. Verify the following expenses:
    • Bad Debts: 300,000
    • Rent Expense: 33,000
  6. Enter Rent Expense as the Description.
  7. Enter the following amounts for taxes:
    Payroll Taxes370,000
    Sales and Use Tax

    20,000

    Real Property Tax

    350,000

    Personal Property Tax

    10,000

    Franchise Taxes

    111,000

    Other Taxes6,000
    Total Tax

    867,000

  8. Enter the following:
    • State and Local Taxes: 11,000,000
    • Interest Expense: 130,000
  9. Enter Interest Expense as the Description.
  10. Enter the following:
    • Charitable Contributions: 350,000
    • Depreciation balance to Page 1 Override: 200,000
    • Amortization: 444,444
  11. For Advertising, enter the descriptions and amounts as follows:
    • Advertising: 1,200,000
    • Promos: 40,000
    • Samples: 30,000
    • Total Advertising: 1,270,000
  12. For Pension/Profit Sharing, enter the descriptions and amounts as follows:
    • Benefit Plans Expense: 4,330,000
    • Non-Qualified Benefit Plans Exp.: 2,000,000
    • Total Pension/Profit Sharing: 6,330,000
  13. For the Employee Benefit Program, enter Employee Benefit Programs as the Description, and enter 1,400,000 as the amount.
  14. For Meals and Entertainment (100%), enter 149,500.
  15. Enter amounts for Other Deductions:
    Directors Fees

    250,000

    Employee Relations

    112,000

    Fees and Services

    42,000

    Outside Services

    60,000

    Postage and Freight

    200,000

    Environmental Expense2,300,000
    Professional Fees

    2,000,000

    Travel

    900,000

    Warehouse and Storage30,000
    Miscellaneous90,000
    Misc. Employee Benefits297,000
    Insurance Premiums1,662,222
    Utilities

    170,000

    Supplies

    230,000

    Total Other Deductions

    8,343,222

Depreciation

The business uses asset management software to keep track of the company’s assets. Enter the summary amounts only for purposes of generating the 4562.

  1. Select Income and Deductions > Deductions > Depreciation and Amortization > General Depreciation and Amortization > Form 4562 Information > 4562 Overrides.
  2. Enter the following:
    Basis9,000,0003,000,000
    Recovery Period5.07.0
    ConventionHYHY
    Method200DB200DB
    Current Year Depreciation1,800,000428,700
  3. For the nonresident, enter the following:
    Date placed in Service09/01/2019
    Basis10,000,000
    Recovery Period39 Yr.
    ConventionHY
    Method200DB
    Current Year Depreciation1,800,000
  4. Take the MACRS deduction for assets placed in service during prior tax years: 1,615,300.
  5. The business also had amortization that should be recorded. Scroll down and enter:
    • Description: Intangible Assets
    • Date: 09/01/2019
    • Amount: $20,000,000
    • Code Section: Section 197
    • Life/Period: 15 years
    • Current Year amortization: $ 444,444

Contributions

  1. Select Income and Deductions > Deductions > Contributions > Current Year Contributions.
  2. Verify the amount for Charitable Contributions: $ 350,000.

Net Operating Losses

  1. Select Income and Deductions > Deductions > Net Operating Loss > Non-SRLY NOL.
  2. Verify that the corporation has an NOL Carryforward with the remaining amount generated of $20,000,000 from 2015.

Organizer Overrides

  1. Select Income and Deductions > Deductions > Detail.
  2. Scroll down to Depreciation to page 1 if no detail.
  3. Verify that the depreciation is entered: $ 200,000.
  4. Make sure that the box for Override total, claimed elsewhere and net depreciation is checked.
  5. Select Income and Deductions > COGS/COOPS.
  6. Verify that the Cost of Goods Sold Depreciation is entered as $3,718,900.

NOL Carryovers

  1. Select Carryovers, Footnotes, and Invoicing > Carryovers > Computed Carryover Detail > Carryover Detail > Regular NOL > Non-SRLY NOL tab.
  2. Verify that the 2015 Carryover from prior years is $20,000,000.

AMT NOL Carryovers

  1. Select Carryovers, Footnotes, and Invoicing > Carryovers > Computed Carryover Detail > Carryover Detail > AMT NOL with 90% AMTI Limit > AMT NonSRLY NOL tab.
  2. Verify that the 2015 Carryover from prior years is $25,176,479.

Pass-Through Entity

  1. Select Income and Deductions > Pass-Through Entity > Pass-Through Entity > Add new Pass-Through Entity.
  2. Enter XYZ Partnership.
  3. Select the Income/Deductions tab.
  4. Enter the following:
    • Ordinary income (line 1): $ 6,000
    • Net long-term capital gain (loss) (line 9a): $ 7,000

Gains and Losses

  1. Select Quick Track > Sales of Business Prop.

    OR

    Select Gains and Losses > Disposition of Property > Disposition Detail > Create Disposition of Property.
  2. Enter Machinery & Equipment in the Description of Property entry box.
  3. Under Disposition Type, click Select Form, and click the drop-down arrow.
  4. Click Form 4797.
  5. Go to Type of Property.
  6. Click Select Type of Property, and click the drop-down arrow.
  7. Click Section 1245.
  8. Do an auto compute after Type of Property is entered.
  9. Select Sales of Business Property.
  10. Click Machinery and Equipment.
  11. Verify that the Description of Property is Machinery and Equipment and that the Type of Property is Section 1245.
  12. Enter Machinery and Equip and click OK.
    Date Acquired

    01/01/2014

    Date Sold

    07/01/2019

    Sales Price$ 35,000
    Cost

    $2,000,000

    Accum Depreciation$2,000,000
    AMT Accum Depreciation

    $2,000,000

    ACE Accum. Depreciation

    $1,888,675

Capital Asset Sales

  1. Select Gains and Losses > Capital Gains and Losses > Capital Asset Sale Detail > Add new Description of Property.
  2. Enter ABC Stock and click OK.
  3. Enter the following:
    • Cost: $40,000
    • Sales Price: $55,000
    • Date Purchased: 01/15/2019
    • Date Sold: 07/20/2019
  4. Select Add new Description of Property.
  5. Enter DEF Stock and click OK.
    • Cost: $5,000
    • Sales Price: (Leave blank)
    • Date Purchased: 02/01/2019
    • Date Sold: 12/31/2019

In this case study, you made journal entry #16, which reclassified Net Capital Gain of $10,000 to the categories required by the M-3. As there was no book/tax difference for these items, you did not need to make entries that would affect the M-1. The entry was as follows:

GL Acct# Description Debit

Credit
TAX31-620 Capital Gain Net Income (Schedule D)
(Subtracts 10,000 on Part II,
line 23a, column (c))

$ 10,000

  
605 Worthless Stock (Enters -5,000 on
Part II, line 23f, column (c)) 		$ 5,000  
606 Gross Capital Gains from Schedule D,
excluding flow-through entities
(Enters 15,000 on Part II, line 23b, column (c)) 		 

$ 15,000

This entry was classified as a permanent difference.

By bridging this entry into the tax application, you want the software to use the bridged amounts on Schedule M-3 rather than the calculated amounts from the detail information entered in the gains and losses section of the software. If you want the software to use the bridged amounts, you must activate the option box Do not carry gain/loss from Sch D and Form 4797 as a permanent difference to Part II, lines 23b through 23f on the M-3 Organizer screen.

The preferred method of entering gains and losses on returns having an M-3 is to bridge only the original book amount (in this case $10,000) and not make the reclassification entry at all. Then enter the gains and losses information in the tax application Organizer screen for each sale. Choose an option on the Organizer screen under Schedule M-3 Classification: Flow-through entity, Abandonment loss, or Worthless stock (if applicable). The software will automatically populate column (c) on the appropriate line of M-3, Part II, line 23.

If one of the above options is not selected, the software will determine whether the transaction results in a gain or loss and will populate the M-3, Part II, lines 23b, Gross capital gains, or 23c, Gross capital losses accordingly. If the sale is from a flow-through entity, marking the radio button will exclude the amount from any part of line 23, but it will not flow to line 9, 10, or 11 of Part II. These lines require all income to be reported, not just gains and losses from flow-through entities.

Adjustments and Preferences Alternative Minimum Tax

  1. Select Taxes > Alternative Minimum Tax > Alt. Min. Tax tab.
  2. Scroll down and enter the following:
    • Depreciation of Post 1986 Property (Override) (Negative) : -$1,243,101
    • ACE Adjustment Override: (Negative): -$551,162

ACE/AMT Adjustments

  1. Select Taxes > Alternative Minimum Tax > ACE Worksheet tab.
  2. Scroll down to ACE Depreciation Adjustments.
  3. Enter the following:
    • AMT Depreciation Override: $5,162,001
    • Post 1993 Property: $1,014,730
    • Post 1989, pre 1994 Property: $4,435,841
    • Pre 1990 MACRS Property: $ 200,000
    • Pre 1990 original ACRS Property: $ 166,988
  4. Scroll down to Disallowance Items not Deductible from EP.
  5. Enter the following for Certain Dividends Received: $ 32,000.
  6. Scroll down to Amounts Used for ACE Carryover Calculation. Verify the following:
    Year ACE

    Preadjustment
    AMTI

    2002600,000400,000
    2003800,000150,000
    20041,800,0001,250,000
    2005900,000250,000
    2006-50,500,000-50,250,000
    20074,350,0004,500,000
    200823,601,211

    24,195,350

Payments of Tax

  1. Select Quick Track > Tax Payments.
  2. Verify 2018 overpayment credited to 2019 of $50,000.
  3. Enter Quarterly Payments:
    • 1st - 04/15/2019: $ 125,000
    • 2nd - 06/15/2019: $19,875,000
    • 3rd - 09/15/2019: $20,000,000
    • 4th - 12/15/2019: $10,000,000
  4. The corporation also made a payment on 03/14/2020 of $5,400,000 to send with their extension request.

Estimates and Penalties

Underpayment of Estimates

  1. Select Estimates and Penalties > Underpayment of Estimate > 2220 Penalty tab.
  2. Verify that Option 4 has been selected to Suppress computation and printing of Form 2220.
  3. Under the Penalties/Interest tab, verify that the following check boxes are selected: Do not compute late payment interest and Do not compute penalty.

Estimated Taxes

  1. Select Estimates and Penalties > Estimated Tax > Estimated Tax/Ovrpay tab.
  2. For the computation of the 2020 estimated tax, verify that Option 1 is selected: Estimate based on Current year tax liability.
  3. For the application of the 2019 overpayment, select the following option: Apply entire overpayment.
  4. Verify that Rounding to the 1st dollar is selected.
  5. Scroll down to the Extended Return section.
  6. For payments on the 2020 estimate, enter the following:
    • 1st installment payment: $12,000,000
    • 2nd installment payment: $12,000,000

Balance Sheet

  1. Select Balance Sheet/M1-M2-M3 > Balance Sheet > Asset tab.
    AssetsBeginningEnding
    Cash$32,620,000$ 9,000,000
    Enter Description of Cash
    Accounts Receivable15,000,00023,000,000
    Enter Description of Trade Notes and Accounts Receivable
    Allowance for
    Doubtful Accounts    		2,000,0003,000,000
  2. Under Inventories , enter the following descriptions and amounts:
    AssetsBeginningEnding
    Inventories$ 7,000,000$ 9,000,000
    Less: Obsolescence
    Reserve    		1,345,0001,200,000
  3. Verify the following:
    AssetsBeginningEnding
    Net Inventory$ 5,655,000$ 7,800,000
    Prepaid Insurance475,0001,130,000
    Investment in Subsidiary18,000,00018,000,000
    Depreciable Assets75,000,00095,000,000
    Less: Accumulated
    Depreciation    		50,120,00050,413,333
    Land (net of amortization)1,000,0003,000,000
    Intangible Assets 20,000,000
    Less: Accumulated
    Amortization    		 444,444
    Total Assets$95,630,000$123,072,223

Liabilities and Stockholder’s Equity

  1. Select Balance Sheet/M1-M2-M3 > Balance Sheet > Liabilities tab.
  2. Enter the following:
    LiabilitiesBeginningEnding
    Accounts Payable$ 7,000,000$ 9,000,000
    Enter Description of Accounts Payable
    Current Notes Payable1,000,0001,000,000
    Enter Description of Mortgages, notes, bonds payable
    Taxes Payable3,114,0004,010,223
    Bonuses Payable5,925,00012,725,000
    Commissions Payable250,0001,400,000
    Interest Payable50,00075,000
    Utilities and Other Payables190,000261,000
    Incentive Savings Plan-401K4,000,0006,000,000
    Prepaid Income4,000,0006,000,000
    Workers Compensation Accrual3,600,0001,800,000
    Other Mortgages Notes and Bonds14,000,00013,000,000
    Post Retirement Payable15,500,00020,300,000
    Warranty Reserves2,000,0002,500,000
  3. Select Balance Sheet/M1-M2-M3 > Balance Sheet > Stockholder’s Equity tab.
  4. Enter the following:
    LiabilitiesBeginningEnding
    Common Stock (10,000 shares common)1,0001,000
    Enter Description of Common Stock
    Paid-in or Capital Surplus10,000,00010,000,000
    Enter Description of Paid-in Capital
    Retained earnings (unappropriated)25,000,00035,000,000
    Total Liabilities and Equity$95,630,000$123,072,223
  5. Verify that the following check box is selected: Automatically compute ending unappropriated retained earnings.
  6. Under the Accrual Options tab in State Tax Accrual, verify that the Current year book state taxes expense is $ 11,000,000.

Schedule M-1/M-2

M-1 Reconciliation

  1. Select Balance Sheet/M1-M2-M3 > Schedule M1/M2 > Reconciliation (M-1) tab.
  2. Select the check box Suppress automatic calculation.
  3. Verify the following:
    • Net Income per books: $101,605,800
    • Federal Income Tax: 56,000,000
    • Travel and Entertainment (T&E) does not need to be entered here. An adjustment of $74,750 will automatically be made by the tax application since the T&E expenses of $149,500 were entered on 1120, Page 1 as a deduction subject to the meals and entertainment limitation.
  4. On the M-1 Reconciliation tab, enter the following for Other Expenses recorded on Books Not Deducted in the return:
    • Sec. 263A Ending Inventory Adjustment: $ 350,000
    • Warranty Reserve: 500,000
    • Club Dues: 20,000
    • Foreign Taxes: 80,000
    • Bad Debt Reserve (NON-475): 1,000,000
    • Post Retirement: 4,800,000
    • Total: $ 6,750,000
  5. Enter the following for Income on Books Not Included in the return:
    • Unrealized foreign exchange gain reversal: $ 40,000
    • Other: 2,000
  6. Enter the following for Other Deductions in this return not charged against Book Income:
    • Depreciation: $ 1,625,566
    • Inventory Obsolescence Reserve: 145,000
    • Prepaid Insurance: 365,000
    • Sec. 263A Inventory Adjustment: 250,000
    • Workers Compensation: 1,800,000
    • Bonuses: 400,000
    • Total: $ 2,960,000

M-2 Analysis

  1. Select Balance Sheet/M1-M2-M3 > Schedule M1/M2 > Retained Earnings (M-2) tab.
  2. Verify that Cash Distributions is $91,605,800.

Asset Acquisition

  1. Select Informational Forms > Asset Acquisition > Add new Name of other party.
  2. Enter Sun Company and click OK.
  3. Verify that this option is selected: Filer Information is Seller.
  4. Enter the rest of the information related to the acquisition:
    Other Party ID #

    15-9998776

    Address

    123 Alfalfa Street
    Spartanburg, CA 91432

    Date of Sale09/01/2019
    Total Sales Price

    $44,000,000

  5. Scroll down and enter the Assets Transferred:
     Aggregate FMVAllocation of
    Sales Price
    Class III 24,000,000

    24,000,000

    Class IV20,000,000 20,000,000
  6. Select the check boxes related to the above note.

Buyer and Seller provided for allocation of sale price in writing and aggregate FMV was agreed upon in writing.

Foreign Information

25% Foreign Owned Corporation

  1. Select Foreign Information > 25% Foreign Owned Corporation > Common Information > Common Information.
  2. Enter the following:
    • Total value of gross payments: $25,000,000
    • Total number of Forms 5472 filed for the tax year: 49
  3. Verify that the company is incorporated, files tax returns, and has its principal business in the United States.
  4. Select Common Shareholder Information, and verify all information:
    Name

    Sun-GmbH

    Address

    22 Millstrasse
    Fruehauf, Germany

  5. The company is incorporated, files under the law, and has principal business in Germany.
  6. Select Foreign Information > 25% Foreign Owned Corporation > Add New Related Party > Mandatory Entry - Related Party.
  7. Enter Sun GmbH.
  8. Enter all information:
    Name

    Sun-GmbH

    Address

    22 Millstrasse
    Fruehauf, Germany

    Principal BusinessStationery
    Business Location and Residence

    Germany

Monetary Transactions

  1. Select Foreign Information > 25% Foreign Owned Corporation > Sun-GmbH > Monetary Transactions.
  2. Go to Exchange Rate Schedule.
  3. Enter Amounts entered are in U.S. Dollars in the Description field.
  4. Enter 1.0 in the Ratio field.
  5. Enter $25,000,000 for Sales of stock in trade.

Additional Information

  1. Select Foreign Information > 25% Foreign Owned Corporation > Sun-GmbH > Additional Information: Form 5472, Part VI.
  2. Verify that the question Does the reporting corporation import goods from a related party is answered Yes.
  3. Verify the second question Is the basis in the goods valued differently than the customs value of the imported goods? is answered No.

Transmittal Letter and Filing Instructions

The Tally Inc. return does not want any transmittal letter or filing instructions. Suppress all the letters.

  1. Select Letters and Filing Instructions > General Options.
  2. Select the option to Suppress All Letters.
  3. Perform a full recompute of the return.

State Information

In this section, you start by setting up your common state information. Once complete, all of these items will automatically carry to any state that has the common state field. Then import any apportionment information and add any specific state entries.

On early releases of the tax software, you may not be able to complete the state returns. Complete this section only for the states that have been released.

Verify that all the states listed below have been activated.

Common State

  1. To add/delete states, select Quick Track > Add/Delete States.
  2. Verify that Arkansas, California, and Illinois are selected.

Miscellaneous State Information

  1. Select States > Common State > General Information. Verify the following:
    State of IncorporationDelaware
    State of commercial domicileIllinois
    Location of accounting
    records and principal business

    Tally, Inc.
    600 Bay Street
    Chicago, IL 60699

  2. Enter the Business Telephone Number: 1-800-555-2817.

Tax Estimate Options

  1. Select States > Common State > Tax Estimate Options > Overpayment tab.
  2. Select Apply entire overpayment to estimate. Credit excess to future years.

Extensions and Estimates

  1. Select States > Common State > Extension and Estimates > Payments tab.
  2. Scroll down to Estimates - Payments made on current return.
  3. Enter the following:
     Payment 1 Payment 2Payment 3

    Payment 4

    Arkansas 1,250 1,250 1,250 1,250
    California50,000100,000100,000100,000
    Illinois 2,500,0002,500,0002,000,0002,000,000
  4. California also had a prior year overpayment of $50,000.
  5. Illinois is going to be put on extension and the payment to be made with the extension will be $400,000.

Once the return is computed, the information entered here will carry automatically to the Common State Adjustments Organizer in the Taxes > State Income Taxes folder.

Tax Accruals

  1. Select States > Common State > Tax Accrual > Accrual Options tab.
  2. Verify $11,000,000 for current year book state tax expense.
  3. Verify that the check box to disable automatic accrual is selected.

Depreciation

  1. Select States > Common State > Depreciation > State Depr Options/Gains.
  2. For California, enter a check in the B column.

Print Options

  1. Select States > Common State > Print Options > Management Report Options.
  2. Select: Arkansas, California, and Illinois.

Allocation and Apportionment

The Allocation and Apportionment (A&A) DIF file (TallyAA.dif) and a template file (TallyA&A.kat) need to be used to import the allocation and apportionment data for the three states.

Electronic files for A&A are located in the C:\Program Files(x86)\RIA\RS2019 directory.

  1. To import the A&A data, select File > Import > From DIF file.
  2. Enter the path shown above and the DIF file:
    • TallyAA.dif in the DIF File field (first field):
    • DIF File field example: C:\Program Files(x86)\RIA\RS2019\TallyAA.dif
  3. Enter the path and TallyA&A.kat in the Template field (second field):
    • Template field example: C:\Program Files(x86)\RIA\RS2019\TallyA&A.kat
  4. If you are not sure, click either the DIF field or the Template field and use your Browse button to find the file.
  5. Once you have entered both file names, select Import.
  6. The file will be imported and a prompt Import Successful appears.
  7. Click OK to close the message box.

A&A Activation

  1. Select States > Allocation and Apportionment > A&A Activation.
  2. Click the box to Activate the Allocation and Apportionment Area.
  3. Select Compute > Full Recompute to recompute the tax return.

Reviewing the Imported Data

  1. Select States > Allocation and Apportionment > A&A Data Entry > Property Data Entry.
  2. Verify the imported property data:
    StateBeginningEnding
    Inventory
    Arkansas 3,000,000
    California1,055,0001,000,000
    Illinois4,600,0003,800,000
    Everywhere5,655,0007,800,000
    Land
    Illinois1,000,0003,000,000
    Everywhere1,000,0003,000,000
    Buildings
    Arkansas 10,000,000
    California5,000,0005,000,000
    Illinois29,000,00029,000,000
    Everywhere34,000,00044,000,000
    Buildings Accumulated Depreciation
    Arkansas 133,333
    California1,040,0001,170,000
    Illinois8,080,0009,310,000
    Everywhere9,120,00010,613,333
    Machinery and Equipment
    Arkansas 9,000,000
    Illinois35,000,00033,000,000
    Everywhere35,000,00042,000,000
    Machinery and Equipment Accumulated Depreciation
    Arkansas 600,000
    Illinois35,000,00033,000,000
    Everywhere35,000,00033,600,000
    Furniture and Fixtures
    Arkansas 3,000,000
    Illinois6,000,0006,000,000
    Everywhere6,000,0009,000,000
    Furniture and Fixtures Accumulated Depreciation
    Arkansas 200,000
    Illinois6,000,0006,000,000
    eVERYWHERE6,000,0006,200,000
    Rentals: Gross Rentals Tangible Personal Property
    iLLINOIS 4,033,000
    eVERYWHERE 4,033,000
  3. Review the imported payroll data. Select States > Allocation and Apportionment > A&A Data Entry > Payroll Data Entry.
  4. For Officer/Salesman, verify the following:
    • Officer Compensation for Illinois: 1,775,000
    • Officer Compensation for Everywhere: 1,775,000
  5. For Other Salaries and Wages:
    • Arkansas: 30,000,000
    • California: 950,000
    • Illinois: 90,150,000
    • Everywhere: 121,100,000
  6. Review the imported Sales data. Select States > Allocation and Apportionment > A&A Data Entry > Sales Data Entry.
  7. Review the Receipts from Sales:
    StateSales within State
    to within State    		Sales without State
    to within State
    Arkansas25,000,000200,000,000
    California23,000,000 
    Illinois476,000,000475,000,000
    Everywhere524,000,000675,000,000
  8. Review Interest and Dividends:
    • For Other Interest:
      • Illinois: 90,000
      • Everywhere: 90,000
    • For Other Dividends:
      • Illinois: 40,000
      • Everywhere: 40,000
  9. Review the Sales of Assets. For Gross Proceeds - Sales of Real and Tangible Personal Property:
    • Illinois: 50,000
    • Everywhere: 50,000

Arkansas

General Information

  1. Select States > Common State > General Information.
  2. Verify the following:
    State Corporation TypeDomestic
    State Filing Status

    Multi-state corporation-apportionment

    Date business began in Arkansas

    01/13/2000

Overpayment and Estimate Options

  1. Select States > Arkansas > Overpayment and Estimate Options.
  2. On the Overpayment tab, change the Overpayment option to Apply entire overpayment to estimate. Credit excess to future years.
  3. On the Estimated Tax tab, change the Estimate option to Suppress compute and print.

Underpayment Options

  1. Select States > Arkansas > Underpayment Options.
  2. Select Suppress computation and printing of Form AR2220.

California

General Information

  1. Select States > Common State > General Information.
  2. Verify that the Accounting Method is selected as Same as Common State.
  3. Select States > California > General Information > General Information.
  4. In the Scannable Forms Information section, enter the California Corporation Number: 123-38470.
  5. In the Additional Information section, select Yes for Was more than 50% of the voting stock of another corporation owned by this corporation.
  6. Verify that the Ownership schedule shows the following:
    Name

    Moon Dreams

    ID56-2365849
    Ownership70%
  7. Select Yes for Is the corporation apportioning income to California using Schedule R.
  8. Verify that the Corporation headquarters are outside California and within the United States.
  9. Verify that Yes is answered for Have all required information returns been filed?

Overpayment and Estimate Options

  1. Select States > California > Overpayment and Estimate Options.
  2. On the Overpayment tab, change the Overpayment option to Apply entire overpayment to estimate. Credit excess to future years.

State Adjustments

  1. Select States > California > State Adjustments.
  2. On the State Adjustments tab, enter:
    • Net Income before state adjustments (override): $159,805,734
  3. On the Depreciation Adjustments tab, enter:
    • Amortization allowable for state purposes: $ 444,444

Tax Computation

  1. Select States > California > Tax Computation.
  2. Enter Taxes before credits (override): $ 354,454.

California: Schedule R2 Questions

  1. Select States > California > Allocation and Apportionment > Schedule R2.
  2. Enter Question 1: Retailer Dividends: There are no dividends received for California purposes.

Underpayment Options

  1. Select States > California > Underpayment Options.
  2. Select the Exception A option: Large Corporation.
  3. Enter Prior Years Tax: $ 354,454.

Illinois

General Information

  1. Select States > Common State > General Information.
  2. Verify the address of the principal place of business: Chicago, Illinois.

Overpayment and Estimate Options

  1. Select States > Illinois > Overpayment and Estimate Options.
  2. On the Overpayment tab, change the Overpayment option to Apply entire overpayment to estimate. Credit excess to future years.

State Adjustments

  1. Select States > Illinois > State Adjustments > State Adjustments.
  2. Under Additions, enter Illinois income and replacement tax: $ 8,000,000.

Net Operating Losses

  1. Select States > Illinois > Net Operating Losses > NOL Single Company > 2004.
  2. In the Detail for Schedule NLD Part I section, verify the Loss year ending 12 2004.
  3. Verify the following:
  4. Reported Illinois net loss: $ 40,000,000
    • Illinois net loss previously carried back or forward: $ 20,000,000
    • Base income allocated to IL this year (override): $133,077,622
  5. In the Illinois Net Loss Previously Used section, verify the following:
    • Loss as of 12 2003 Amount used: $ 4,000,000
    • Loss as of 12 2004 Amount used: $ 16,000,000

Underpayment Options

  1. Select States > Illinois > Underpayment Options.
  2. In the Options to Compute and Print Underpayment Penalty section, select Suppress computation penalty and do not print form.

 

 

 

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