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: Which of the following answers is correct?

Question

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:  Which of the following answers is correct?

Quizplus · Accepted Answer

Statement 1 is correct, as Green Corporation can offset its active income of $50,000 with the passive activity loss of $70,000, resulting in a net loss of $20,000 that can be carried forward to offset future taxable income. 
Statement 2 is also correct, as Green Corporation will need to file Form 8582 to report the passive activity loss, and may also be subject to the passive activity loss limitations, which restrict the amount of passive losses that can be used to offset other income.

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