Exam 11: S Corporations

When a Sec. 444 fiscal- year election is made, the S corporation makes required payments to the IRS in order to continue to use the fiscal year as its tax year. Which of the following statements about the tax year is correct?

King Corporation, a cash method taxpayer that uses the calendar year as its tax year, was incorporated on June 1, 1984. The corporation made its initial S election on December 1 of last year, effective for the current tax year. Earnings and profits of $60,000 have been retained from C corporation tax years. Which one of the following events results in the recognition of a built- in gain?

Jeff owns 50% of an S corporation's stock with a basis in his stock of $50,000 on January 1. In addition, the S corporation owes Jeff $30,000 on January 1. The debt has a basis of $30,000 and is evidenced by a note. The S corporation reports an ordinary loss of $150,000 for the current year. The next year, it reports ordinary income of $20,000. On January 1 of the third year, the note is repaid. Due to the repayment of the note, Jeff must report what?

What is a permitted year?

Identify which of the following statements is true.

Identify which of the following statements is true.

Identify which of the following statements is false.

Identify which of the following statements is true.

A testamentary trust can be an S shareholder for two years, beginning on the date the stock transfers to the trust.

The passive income test relating to an S corporation election is applied

Chuck Corporation reports the following results for this year: Servioe (nonpassive) income \ 17,500 Dividend income 18,500 Interest income 14,000 Passive income- related expenses 5,000 Other expenses 12,500 At the end of this year, Chuck's E&P for its C corporation tax years amount to $30,000. Compute Chuck Corporat excess net passive income.

Shamrock Corporation has two classes of common stock outstanding. The Class A and Class B common stock give the shareholders identical rights and interests in the profits and assets of the corporation. Class A has one vote per share. Class B is nonvoting. Can Shamrock Corporation make an S corporation election?

Identify which of the following statements is true.

Potter Corporation reports the following results for the current year: Operating income \ 40,000 Dividend income 35,000 Interest income 25,000 Other expenses 25,000 Passive income- related expenses 20,000 At the end of the year, Potter's Subchapter C E&P is $50,000. What is the amount of Potter's excess net passive in

Can loss or credit carryforwards from a previous C corporation tax year help reduce the built- in gains tax?

Identify which of the following statements is true.

Zebra Corporation has always been an S corporation and is 100% owned by Paul. Paul has a basis of $40,000 in his Zebra stock at the beginning of the year. During the year, Zebra has an ordinary loss of $20,000 and a long- term capital gain of $10,000. In addition, Zebra Corporation distributed $55,000 in cash to Paul on December 1. Will the distribution cause Paul to recognize a gain? If so, what are its amount and character?

Cactus Corporation, an S Corporation, had accumulated earnings and profits of $100,000 at the beginning of 2011. Tex and Shirley each own 50% of the stock. Cactus does not make any distributions during 2011, but had $200,000 of ordinary income. In 2012, ordinary income was $100,000 and distributions were $100,000. What is Tex's ordinary income for 2012?

King Corporation, an electing S corporation, is 100% owned by Crystal. On January 1 of the current year, her adjusted basis in the King stock is $30,000. During the year, King reports an ordinary loss of $30,000, tax- exempt municipal bond income of $15,000, dividend income from domestic corporations of $5,000, a long- term capital loss of $20,000, and a short- term capital loss of $30,000. What is Crystal's basis for the King stock at the end of the year?

On June 30 of the current year, the S election of Great Corporation is terminated, thus creating a six- month S short year and a six- month C short year. Great Corporation is a calendar- year taxpayer. The S short- year return is due