Erin Corporation, a personal service corporation, had $230,000 of active income, $40,000 of portfolio income, and a $250,000 passive loss during the year. How much is Erin's taxable income?
A)$20,000.
B)$40,000.
C)$270,000.
D)$520,000.
E)None of the above.

Question

Quizplus · Accepted Answer

Erin Corporation's taxable income will be calculated by deducting passive losses from active income.

Taxable income = Active income - Passive loss 
Taxable income = $230,000 - $250,000 
Taxable income = -$20,000

However, since Erin Corporation is a personal service corporation, it is not allowed to offset its active income with passive losses. Therefore, Erin Corporation's taxable income will be its active income plus its portfolio income.

Taxable income = Active income + Portfolio income 
Taxable income = $230,000 + $40,000 
Taxable income = $270,000

Therefore, the correct answer is C) $270,000.

Erin Corporation, a Personal Service Corporation, Had $230,000 of Active