Green Corporation earns active income of $50,000 and receives $40,000 in dividends during the year.In addition,Green incurs a loss of $70,000 from an investment in a passive activity acquired several years ago.Consider the following two statements: (1) Green's current deduction for passive losses is $50,000 if it is a closely held C corporation that is not a personal service corporation. (2) Green's current deduction for passive losses is $0 if it is a personal service corporation. Which of the following answers is correct?

Question

Quizplus · Accepted Answer

Statement 1 is correct because if Green Corporation is a closely held C corporation and not a personal service corporation, it can deduct up to $50,000 of passive losses against active income. 
Statement 2 is also correct because a personal service corporation cannot deduct any passive losses against active income. Therefore, the correct answer is C, "Both statements 1 and 2."

Green Corporation Earns Active Income of $50,000 and Receives $40,000