Exam 22: S Corporations

Suppose a calendar year C corporation, NewCorp., Inc., was formed on January 1, 2017 and all of the shareholders filed a form 2553 to elect S corporation status on April 14,2017 with the consent of all of NewCorp. Inc.'s shareholders: Hassell, RichieCunningham, and Arnold's, Inc. (a C corporation). When is the S election effective?

Publicly traded corporations cannot be treated as S corporations.

An S corporation shareholder's allocable share of ordinary business income (loss) is classified as self-employment income for tax purposes.

Clampett, Inc. has been an S corporation since its inception. On July 15, 2018, Clampett, Inc. distributed $50,000 to J. D. His basis in his Clampett, Inc. stock on January 1, 2018, was $45,000. For 2018, J. D. was allocated $10,000 of ordinary income from Clampett, Inc. and no separately stated items. How much capital gain does J. D. recognize related to Clampett, Inc. in 2018?

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

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 corporation distributions of cash are not taxable to the shareholder to the extent of the combined shareholder's stock and debt basis.

During the post-termination transition period, property distributions are tax-free toshareholders to the extent they do not exceed the S corporation's AAA balance and the individual shareholder's basis in the stock.

Like partnerships, S corporations generally determine their accounting periods and make accounting method elections at the entity level.

Corporations taxed as S corporations offer the same legal protection to owners ascorporations taxed as C corporations.

Assume Joe Harry sells his 25% interest in Joe's S Corp., Inc. to Tyrone on January 29.Using the specific identification allocation method, how much income does Joe Harry report if Joe's S Corp., Inc. earned $200,000 from January 1 to January 29 and a total of$1,460,000 from January 1 through December 31 (365 days)?

The same exact requirements for forming and contributing property govern Scorporations and partnerships.

Which of the following is the correct order in which loss limitation rules are applied?

Assume that at the end of 2017, 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 E&P 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?

Assume that at the end of 2017, 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 E&P and J. D. has a basis of $50,000 in his Clampett, Inc. stock. What is J. D.'s stock basis after the distribution?

Built-in gains recognized fifteen years after a C corporation elects to become an Scorporation are subject to the built-in gains tax.

Tone Loc and 89 of his biggest fans formed an S corporation, 2hit, Inc., as the original ninety shareholders. Tone then transferred some of his stock to his grandfather, four of Tone's cousins, five of Tone's children, three of Tone's grandchildren, and 2 closefriends. For the S corporation shareholder limit rules, how many shareholders does 2hit, Inc. have?

Which of the following statements is correct regarding S corporation estimated taxes?

Clampett, Inc. has been an S corporation since its inception. On July 15, 2018, Clampett, Inc. distributed $50,000 to J. D. His basis in his Clampett, Inc. stock on January 1, 2018, was $30,000. For 2018, J. D. was allocated $10,000 of ordinary income from Clampett, Inc. and no separately stated items. What is the amount of income J. D. recognizesrelated to Clampett, Inc. in 2018?

The specific identification method and monthly allocation method are methods an S corporation may use to allocate its income across short tax years that result from an involuntary S election termination.