Exam 11: S Corporations

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?

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 false.

Arnie is a 50% shareholder in Energy Corporation, an S corporation. The S corporation had an $80,000 ordinary loss last year and $10,000 of ordinary income this year. Before accounting for last year's losses, Arnie's basis in his Energy stock is $32,000 and Energy owed Arnie $4,000 (an unsecured note having a basis of $4,000) at the end of last year. In addition, Energy had $100,000 of other liabilities owed to creditors other than Arnie at the end of last year. What income and loss must Arnie report on his current return as a result of owning the Energy stock (ignoring the at- risk and passive activity limitations)?

Which of the following items is not separately stated for an S corporation?

Identify which of the following statements is false.

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?

Potter Corporation reports the following results for the current year: 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

An S corporation is not treated as a corporate taxpayer with respect to which one of the following fringe benefits?

Rocky Corporation, an S corporation, reports the following results for the current year: 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.

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

Which of the following statements about stock ownership is not correct?

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?

Which of the following corporate tax levies are imposed on an S corporation?

Boxer Corporation, a C corporation, elects on June 30 of last year to make an S election for the current year. The net unrealized built- in gains at the beginning of the current year are $300,000. The net recognized built- in gains in the current year are $110,000. What is Boxer's built- in gains tax for the current year?

Identify which of the following statements is true.

If losses are suspended due to the lack of basis in S corporation stock, do the losses expire when the S election terminates?

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?

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

Cactus Corporation, an S Corporation, had accumulated earnings and profits of $100,000 at the beginning of 2008. Tex and Shirley each own 50% of the stock. Cactus does not make any distributions during 2008, but had $200,000 of ordinary income. In 2009, ordinary income was $100,000 and distributions were $100,000. What is Tex's ordinary income for 2008?