Exam 11: S Corporations

Pressley Corporation was incorporated on January 1, 2004. The corporation made its S election on March 1, 2008. The corporation retains an E&P balance from its C corporation days. During the current year, it made a cash distribution to its sole shareholder Robert Pressley. What is the proper sequence in reducing the corporate earnings accounts for the distribution?

Garret and Hans own all the stock of GH Corporation. Garret sells all his GH stock to Olga on February 12. The next day, GH makes an S election. For the election to apply to the current year, who must consent to the election?

Identify which of the following statements is true.

Up to six generations of a family are considered as one shareholder for purposes of the 100-shareholder limit.

For the calendar year, Elk Corporation, an S corporation, has book income of $55,000, which includes $45,000 from operations and a $10,000 net long-term capital gain. During the year, $22,500 is distributed to Elk's three equal shareholders, all of whom are calendar-year taxpayers. What are Elk's total ordinary income and capital gain pass-throughs for the year?

Identify which of the following statements is true.

Connie's Restaurant has been an S corporation since it was formed in 2006. Its results for the previous year are as follows: Sales $200,000 Supplies 90,000 Salaries 50,000 Depreciation 5,000 Interest on business loan 1,000 Charitable contributions 3,000 Advertising 4,000 Utilities expense 6,000 Property taxes 1,000 Gain on the sale of investment land (long-term) 8,000 What are Connie's separately stated items? What is the S corporation's ordinary income?

Which of the following conditions will not cause an S election to be terminated?

The Vanity Corporation organized and began operations in January. The corporation's ten equal shareholders elect to have Vanity taxed as an S corporation, and the election and necessary consents are filed in a timely manner. For its first tax year ended December 31, Vanity has ordinary income of $64,000 and short-term capital gains of $16,000. During the year, it distributes $30,000 in cash equally to its ten shareholders. For the year, how much income should each shareholder report and how should it be characterized?

The recognition period for the built-in gains tax extends for how many years after the S election takes effect?

VJ Corporation is to be owned equally by Vic and Joe. The corporation will be formed by exchanging the assets and liabilities of the V & J Manufacturing Partnership for all the corporation's stock on September 1 of the current year. Both shareholders use the calendar year as their tax year and desire to make an S election. What tax issues should Vic and Joe consider with respect to the incorporation?

David owns 25% of an S corporation's stock (a capital asset) for the first three months of the S corporation's tax year. During the year, the S corporation has $16,000 of ordinary income and $32,000 of long-term capital gain. David starts the year with a basis of $50,000 in his S corporation stock and sells the stock for $56,000 on April 1 of the year. Assuming all months have 30 days, how much gain/loss does David report on the sale of the stock and what is its character?

Cook's Outlet has been an S corporation since its inception six years ago. On January 1 of the current year, the corporation's two equal shareholders, Davis and Dane, had adjusted bases of $150,000 and $175,000, respectively, for their S corporation's stock. The shareholders plan to have the corporation distribute land with a $50,000 adjusted basis and a $200,000 FMV in the current year. Ordinary income is expected to be $180,000 in the current year. What tax issues should Davis and Dane consider with respect to the distribution?

An electing S corporation has a $30,000 ordinary loss for the nonleap year. On January 1, Beverly and Sonya own equally all of the S corporation stock. On the 146th day of the year, Beverly gives her one-half of the S corporation stock to her daughter Becky. How much of the $30,000 ordinary loss is allocated to Beverly?

The election of Subchapter S status by a corporation is valid only if all shareholders consent to the election.

Davies Corporation is a calendar-year taxpayer that is owned equally by Vivian, Rob, Danny, and Doug Davies. At the close of business on May 31, Rob Davies sells his 25% stock interest to Paula Bryan. Which of the following statements about the S election is correct?

Cactus Corporation, an S Corporation, had accumulated earnings and profits of $100,000 at the beginning of 2018. Tex and Shirley each own 50% of the stock. Cactus does not make any distributions during 2018, but had $200,000 of ordinary income. In 2019, ordinary income was $100,000 and distributions were $100,000. What is Tex's ordinary income for 2019?

Martha, a U.S. citizen, owns 40% of the stock of George Corporation, an electing S corporation. At the time of her death this year, the George stock passes to her estate. The stock is subsequently transferred to a trust provided for in Martha's will. Can the testamentary trust hold the George stock for a two-year period before the S election is terminated?

Krause Corporation makes an S election, believing that it has no current or accumulated E&P. However, after an IRS audit, Krause is found to have failed the passive investment income test for three consecutive years and also to have a Subchapter C E&P balance from its three pre-election tax years. The IRS will

Identify which of the following statements is true.