05 Salmon Inc a private foundation has existed for 8 years D

0.5 Salmon, Inc., a private foundation, has existed for 8 years. During this period, Salmon has been unable to satisfy the requirements for classification as a pri- vate operating foundation. At the end of 2013, it had undistributed income of $350,000. Of this amount, $185,000 was distributed in 2014, and $165,000 was dis- tributed during the first quarter of 2015. The IRS mailed a deficiency notice to Salmon on August 1, 2016. a. Calculate the initial tax for 2013, 2014, and 2015. b. Calculate the additional tax for 2016.

Solution

Solution (a): The initial tax applies for Salmon for the year 2013 undistributed taxable income to the extent that it is not distributed by the end of 2014. Of the $350,000 of 2013 undistributed taxable income, $185,000 is distributed in 2014. Thus, for 2014, the initial tax is $24,750 ($165,000*15%) and as the remainder of the undistributed taxable income is distributed in 2015, the initial tax for 2015 is $0 ($0*15%)

Solution (b): All of the $350,000(185,000+165,000) inadequate distribution has been distributed by the assessment date. Therefore, there is no additional tax for 2016.