Exam 22: S Corporations

Suppose SPA Corp.was formed by Sara Inc.(a C corporation that is 100 percent owned by Sara)and Sara's friend Tyson.In exchange for 50 percent of the stock of SPA,Sara contributed $100,000.In exchange for the remaining 50 percent of the SPA stock,Tyson contributed a building with a fair market value of $100,000 and an adjusted tax basis of $60,000.How much gain is Tyson required to recognize on the contribution? Is SPA eligible to elect S corporation status?

Which of the following would not result in an S election termination?

Which of the following is prohibited from being an S corporation shareholder?

Which of the following income items from an S corporation is not considered investment income for purposes of the net investment income tax?

At the beginning of the year,Clampett,Inc.,had $100,000 in its AAA and $60,000 of earnings and profits from prior C corporation years.During the year,Clampett,Inc.,earned $50,000 of ordinary income and paid $200,000 in distributions to its shareholders.Assume that J.D.owns 25 percent of Clampett,Inc.,his basis in Clampett,Inc.,at the beginning of the year is $10,000,and his share of the distribution was $50,000.How much,if any,of the distribution is taxable as a capital gain?

When an S corporation distributes appreciated property to its shareholders,the S corporation recognizes gain as though it had sold the appreciated property for its fair market value just prior to the distribution.

S corporations may have no more than 50 shareholders,but members of the same family only count as one shareholder.

During 2019,CDE Corporation (an S corporation since its inception in 2017)liquidates by distributing a parcel of land to its sole shareholder,Clark.The fair market value of the land at the time of the distribution was $100,000 and CDE's tax basis in the property was $30,000.Before considering the effects of the distribution,Clark's basis in his CDE stock was $40,000.What amount of gain (loss),if any,does CDE recognize on the distribution? What amount of income or loss,if any,does Clark recognize on the distribution and what is his basis in the land?

SEC Corporation has been operating as a C corporation since 2016.It elected to become an S corporation,effective January 1,2019.On December 31,2018,SEC reported a net unrealized built-in gain of $10,000.In addition to other transactions in 2019,SEC sold inventory it owned at the beginning of 2019 (it did not sell any other assets it owned at the beginning of 2019).At the beginning of the year,the inventory it sold had a fair market value of $40,000 and a FIFO tax basis of $15,000.SEC sold the inventory for $28,000.If SEC had been a C corporation in 2019,its taxable income would have been $40,000.How much built-in gains tax must SEC pay in 2019? Assume the corporate tax rate is 21%.

For an S corporation shareholder to deduct it,a loss must clear three separate tax provision hurdles: (1)tax-basis,(2)at-risk amount,and (3)tax shelter rules.

If Annie and Andy (each a 30 percent shareholder in a calendar-year S corporation)file a revocation statement on March 20,2019,to terminate their S corporation's S election,what is the effective date of the S corporation termination (assuming they do not specify one)?

Assume that at the end of 2019,Clampett,Inc.(an S corporation)distributes property (fair market value of $40,000,basis of $5,000)to each of its four equal shareholders (aggregate distribution of $160,000).At the time of the distribution,Clampett,Inc.,has no corporate earnings and profits and J.D.has a basis of $50,000 in his Clampett,Inc.,stock.How much income does J.D.recognize as a result of the distribution?

Suppose that at the beginning of 2019 Jamaal's basis in his S corporation stock was $27,000 and Jamaal has directly loaned the S corporation $10,000.During 2019,the S corporation reported an $80,000 ordinary business loss and no separately stated items.After any loss deductions this year,what is Jamaal's stock and debt basis at the end of the year if Jamaal is a 50 percent shareholder of the S corporation?

Assume that Clampett,Inc.,has $200,000 of sales,$150,000 of cost of goods sold,$60,000 of interest income,and $40,000 of dividends.Assume that Clampett,Inc.,has $1,000 of earnings and profits from prior C corporation years and that the corporate tax rate is 21 percent.Clampett,Inc.'s taxable income would have been $122,000 this year if it had been a C corporation.What is Clampett,Inc.'s excess net passive income tax?

Which of the following is not considered a family member for purposes of the S corporation shareholder limit test?

RGD Corporation was a C corporation from its inception in 2015 through 2018.However,it elected S corporation status effective January 1,2019.RGD had $50,000 of earnings and profits at the end of 2018.RGD reported the following information for its 2019 tax year. What amount of excess net passive income tax is RGD liable for in 2019? (Round your answer for excess net passive income to the nearest thousand.)

Which of the following S corporations would be subject to the excess net passive income tax?

As in partnerships,an S corporation shareholder's basis is dynamic and must be adjusted annually.

An S corporation can make a voluntary revocation of an S election if shareholders holding more than 25 percent of the S corporation stock (including nonvoting shares)agree.

The estimated tax payment rules for S corporations generally follow the rules for C corporations.