BAYANO, HAZEL M.

1. It is designed to prevent corporations from escaping tax by including frivolous

expenses in their statement of income.
2. For this would be tax evasion, dividends are meant to be distributed to the
shareholders. It became part of the income of the company and not to their
shareholders.
3. NET OPERATING LOSS CARRY-OVER (NOLCO) it refers to the excess of
allowable deductions over gross income of the business for any taxable year,
which has not been previously offset as deduction from gross income. The net
operating loss of a business shall be carried over as a deduction from gross
income for the next 3 consecutive taxable years immediately following the year of
such loss. The 3-year period shall continue to run notwithstanding that the
corporation paid its taxes under MClT, or that the individual availed of the
Optional Standard Deduction.
For mines, other than oil & gas wells, if loss is incurred in any of the first 10 years
of operation, it may be carried over for the next 5 years.
4. No, if a corporation keeps too much retained earnings, the excess may be
subject to a special corporate income tax. Corporations are allowed to keep a
limit of how much retained earnings they would keep without any special tax.
Sometimes a business might be justified in keeping excess retained earnings. A
company might be preparing to purchase a large real estate asset and will need
as much excess capital as possible to complete the purchase.
5. Corporate profits depend on tax-financed public goods like healthy and educated
workforces; good infrastructure; publicly enforced respect for contracts and
property rights, and so on. When corporations avoid or evade tax, legally or
illegally, they free ride on the backs of the rest of the people especially those who
are paying their individual and business taxes.