Exam 22: S Corporations

Pepper, Inc., an S corporation, holds a $1 million balance in accumulated E&P. It reports sales revenues of $400,000, taxable interest of $380,000, operating expenses of $250,000, and deductions attributable to the interest income of $140,000. What is Pepper's passive income penalty tax payable, if any?

Where the S corporation rules are silent, C corporation provisions apply.

Which item does not appear on Schedule K of Form 1120S?

A capital loss allocated to a shareholder always reduces the Other Adjustments Account.

At the beginning of the year, the AAA of Rose, Inc. shows a balance of $682,000. During the year, the following items occur. Compute the end-of-year AAA balance. Operating income \ 452,000 Interest income 6,550 Dividend income 14,050 Municipal bond interest income 12,000 Short-term capital loss from sale of building 7,400 Section 179 expense 6,500 Charitable contributions 19,000 Cash distributions 57,000 Depreciation recapture 3,500

You are given the following facts about a 40% owner of an S corporation. Calculate her ending stock basis. Owner's beginning stock basis \ 36,800 Increase in AAA. 32,000 Increase in OAA 6,300 Payroll tax penalty 2,140 Tax-exempt interest income 4,800 Life insurance premiums paid 2,700 (nondeductible)

An S corporation recognizes a on any distribution of appreciated property.

The AAA begins with a zero balance on the first day of an S corporation's first tax year.

Several individuals acquire assets on behalf of Skip Corporation on May 28, purchased assets on June 3 and began business on June 11. They subscribe to shares of stock, file articles of incorporation for Skip, and become shareholders on June 21. The S election must be filed no later than two and one-half months after:

Which of the following items, if any, has no effect on the stock basis of an S corporation shareholder?

A former spouse is treated as being in the same family as the individual to whom he or she was married for purposes of determining the number of S corporation shareholders.

If the beginning balance in OAA is zero and the following transactions occur, what is the ending OAA balance? Depreciation recapture income \ 21,000 Payroll tax penalty 4,200 Tax-exempt interest 5,700 Nontaxable life insurance proceeds 3,900 Insurance premiums paid (nondeductible) 2,900 Charitable contributions 17,000

Alomar, a cash basis S corporation in Orlando, FL, holds the following assets and liabilities on January 1, 2020, the date the S election is made. Adjusted Basis Fair Market Value Cash \ 200,000 \ 200,000 Accounts receivable -0- 105,000 Equipment 110,000 100,000 Land 1,800,000 2,500,000 Accounts payable -0- 110,000 During the year, Alomar collects the accounts receivable and pays the accounts payable. The land is sold for $3 million, and the taxable income for the year is $590,000. Calculate any built-in gains tax.

Which item is not included in an S corporation's nonseparately computed income?

An S corporation cannot incur a tax liability at the corporation level.

A service-type S corporation shareholder cannot claim the 20% QBI deduction.

An S corporation shareholder's stock basis includes his or her direct investments plus a ratable share of any corporate liabilities.

On January 1, Bobby and Alice equally own all of the stock of an electing S corporation called Prairie Dirt Delight. The entity incurs a $60,000 loss for a nonleap year. On the 200th day of the year (not a leap year), Bobby sells his one-half of the stock to his son, Saul. How much of the $60,000 loss, if any, is allocated to Bobby?

S corporation status allows shareholders to realize tax benefits from corporate losses immediately (assuming sufficient stock basis).

Distributions of appreciated property by an S corporation are not taxable to the entity.