Assignment 2

Gravey Corporation, a C corporation, during its first 5 years if operation, reported the following taxable incomes (losses):


Taxable Income*











  • Explain the net operating loss provisions of the tax code as they would relate to the Gravey Corporation.
  • Determine the tax liability for the Gravey Corporation for years 1 and 2 (using the tax rates given above).
  • Determine the income tax refund that Gravey Corporation would realize in year 3, assuming the corporation elected to use the carryback provision for its net operating loss.
  • Determine the required income tax payments for year 4.
  • Determine the income tax liability (refund) realized in year 5.
  • If the Gravey Corporation believes its business is about to “take off” and that future incomes will exceed all previous levels, resulting in higher tax rates, would you advise Gravey Corporation to forgo the carryback provision for its year 5 net operating loss? Why, or why not?
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