If a corporation cannot use its interest payments as a tax shield for a particular year because it has suffered a loss, it is still possible to use the tax shield because:
I.the carry-back provision allows corporations to carry back the loss and receive a tax refund up to the amount of taxes paid in the previous two years;
II.the carry-forward provision allows corporations to carry forward the loss and use it to shield income in subsequent years
A)I only
B)II only
C)I and II
D)the firm will lose the tax shield

Question

Quizplus · Accepted Answer

The carry-back provision allows the corporation to use the loss to receive a tax refund for the previous two years, and the carry-forward provision allows the corporation to use the loss to shield income in subsequent years. Therefore, even if the corporation cannot use the interest payments as a tax shield for a particular year due to suffering a loss, it still has the option to use the tax shield in future years through the carry-forward provision.

If a Corporation Cannot Use Its Interest Payments as a Tax