Edison Corporation is organized on July 31. The corporation starts business on August 10. The corporation adopts a November 30 fiscal year end. The following expenses are incurred during the year: $$\begin{array} { | c | l | c | }
\hline \text { Date } & { \text { Type } } & \text { Amount } \
\hline & \text { Attorney's fees associated with obtaining charter } & \
6 - 30 & \text { Underwriter fees for stock sale } & \$ 10,000 \
7 - 10 & \text { Transfer cost for property contributed to the corporation for } & 25,000 \
7 - 15 & \text { stock } & 3,000 \
6 - 30 & \text { Costs of organizational meetings } & 2,000 \
12 - 6 & \text { Legal fees to modify charter } & 4,000 \
\hline
\end{array}$$ What is the maximum amount of organizational expenditures that can be deducted by the corporation for its first tax year ending November 30?

Question

Edison Corporation is organized on July 31. The corporation starts business on August 10. The corporation adopts a November 30 fiscal year end. The following expenses are incurred during the year: $$\begin{array} { | c | l | c | } 
\hline \text { Date } & { \text { Type } } & \text { Amount } \
\hline & \text { Attorney's fees associated with obtaining charter } & \
6 - 30 & \text { Underwriter fees for stock sale } & \$ 10,000 \
7 - 10 & \text { Transfer cost for property contributed to the corporation for } & 25,000 \
7 - 15 & \text { stock } & 3,000 \
6 - 30 & \text { Costs of organizational meetings } & 2,000 \
12 - 6 & \text { Legal fees to modify charter } & 4,000 \
\hline
\end{array}$$ What is the maximum amount of organizational expenditures that can be deducted by the corporation for its first tax year ending November 30?

Quizplus · Accepted Answer

The IRS allows a corporation to deduct up to $5,000 of organizational expenses in the first year, with the remainder amortized over 180 months. However, the $5,000 deduction is reduced by the amount by which total organizational expenses exceed $50,000. Here, the deductible expenses are $2,000 (organizational meetings) and $3,000 (transfer costs), totaling $5,000, which can be fully deducted.

Edison Corporation Is Organized on July 31 What Is the Maximum Amount of Organizational Expenditures That Can