Exam 11: S Corporations

Identify which of the following statements is true.

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

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?

Even if the termination of an S election is considered to be inadvertent, the election to terminate is irrevocable.

S shareholders cannot increase the basis of their stock by a ratable share of the general S corporation liabilities.

Identify which of the following statements is true.

Rocky Corporation, an S corporation, reports the following results for the current year: Ordinary income \ 70,000 Long- term capital gain 20,000 Municipal bond interest income 10,000 Domestic corporate dividends 6,000 Charitable contributions 16,000 Rocky's AAA and accumulated E&P balances at the beginning of the year are $80,000 and $50,000, respectively. makes a $100,000 cash distribution to its sole shareholder on June 1 and a second $100,000 cash distribution on D 1. The shareholder's basis for Rocky stock on January 1 was $120,000. Discuss the tax consequences of these transactions.

Bellows Corporation, a calendar- year taxpayer, has been an S corporation for ten years. Last year, John sold all the Bellows stock to Micky. Payments for the stock are to be made over a five- year period. In March of next year, Micky fails to make the necessary payments and John repossesses the stock. During the time Micky holds the stock, Bellows Corporation revokes its S election. Can Bellows Corporation reelect S status?

Identify which of the following statements is true.

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?

Shanghai Corporation was organized and elected S status in the current year. How much passive investment income can Shanghai earn and retain its S status?

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?

Eagle Corporation has always been an S corporation. Eagle is 100% owned by Katy. Katy's adjusted basis in the Eagle stock is $100,000 on January 1 of the current year. During the current year, Eagle distributes XYZ stock (a capital asset) to Katy. The XYZ stock has a $50,000 FMV and a $40,000 adjusted basis on Eagle's books. The XYZ stock has been held as an investment for four years by Eagle. Eagle Corporation reports $40,000 of ordinary income in the current year. What is Katy's basis in the Eagle stock at the beginning of the next year?

Which of the following tax levies imposed on an S corporation are required to be paid by using estimated tax payments?

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?

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

Power Corporation reports the following results: Service income (not passive income) \ 40,000 Dividend income 30,000 Interest income 60,000 Passive income- related expenses 20,000 Other expenses 50,000 At the end of the year, Power's Subchapter C E&P is $50,000. What is Power Corporation's excess net passive inc and its excess net passive income tax for the year?

Which one of the following is not one of the corporation- related requirements for S corporation status?

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?

Mashburn Corporation is an S corporation that uses a fiscal year ending June 30 as its tax year. When is Mashburn Corporation's income tax return due?