Question 1

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

Accepted Answer

A) True 
 B)False  True

Question 2

During 2020, MVC operated as a C corporation. However, it made an election to be taxed as an S corporation effective January 1, 2021. MVC uses the accrual method of accounting and uses the LIFOmethod of accounting for its inventory. At the end of 2020 its inventory basis under the LIFO method was $80,000. If MVC had used the FIFOmethod of accounting for its inventory, it would have had a $100,000 basis in its inventory. Finally, MVC's regular taxable income in 2020 was $5,000. What amount of LIFO recapture tax must MVC pay? When must it pay the tax?

Accepted Answer

MVC must pay $4,200 [($100,000 FIFO inventory basis − $80,000 LIFO inventory basis)× 21 percent]. The 21 percent tax rate is the marginal rate at which the additional $20,000 of income would have been taxed in 2020 under the corporate tax rate schedule. MVC must pay the tax in four equal installments beginning on the unextended due date of its 2020 tax return and each year thereafter for the following three years. Consequently, MVC must pay $1,050 ($4,200 × 25%)by April 15, 2021 (the unextended due date of the 2020 C corporation return); $1,050 by March 15, 2022; $1,050 by March 15, 2023; and $1,050 by March 15, 2024 (the unextended due dates of the subsequent S corporation returns).

Question 3

Which of the following is a requirement to be an S corporation?

Accepted Answer

A) Be a domestic or foreign corporation 
B) Have only one class of stock 
C) Have fewer than 75 shareholders 
D) Have at least one corporate shareholder 
E) None of the choices are correct. 
A) Be a domestic or foreign corporation 
B) Have only one class of stock 
C) Have fewer than 75 shareholders 
D) Have at least one corporate shareholder 
E) None of the choices are correct. B

Question 4

Suppose that at the beginning of 2020 Jamaal's basis in his S corporation stock is $0, he has a $0 debt basis associated with a $16,500 loan he made to the S corporation, and he has a $11,500 suspended loss from the S corporation. In 2020, Jamaal contributed $14,500 to the S corporation, and the S corporation had ordinary income of $10,500. Assume that Jamaal owns 40percent of the S corporation. How much net income or loss does Jamaal report this year from the S corporation?

Accepted Answer

A) $10,500 income 
B) $4,200 income 
C) $1,000 loss 
D) $7,300 loss 
E) None of the choices are correct. 
A) $10,500 income 
B) $4,200 income 
C) $1,000 loss 
D) $7,300 loss 
E) None of the choices are correct.

Question 5

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

Accepted Answer

A) Basis rules first, at-risk rules second, passive loss rules third 
B) Passive loss rules first, at-risk rules second, basis rules third 
C) Basis rules first, passive loss rules second, at-risk rules third 
D) Passive loss rules first, basis rules second, at-risk rules third 
E) None of the choices are correct. 
A) Basis rules first, at-risk rules second, passive loss rules third 
B) Passive loss rules first, at-risk rules second, basis rules third 
C) Basis rules first, passive loss rules second, at-risk rules third 
D) Passive loss rules first, basis rules second, at-risk rules third 
E) None of the choices are correct.

Question 6

Suppose Clampett, Incorporated, terminated its S election on August 28, 2020. At the end of the S corporation's short tax year ending on August 28, J.D.'s stock basis and at-risk amounts were both zero (he has never had debt basis), and he had a suspended loss of $20,000. In 2021, J.D. made additional capital contributions of $5,000 on March 15 and $12,000 on September 20. How much loss may J.D. deduct in 2021?

Accepted Answer

A) $0 
B) $5,000 
C) $17,000 
D) $20,000 
E) None of the choices are correct. 
A) $0 
B) $5,000 
C) $17,000 
D) $20,000 
E) None of the choices are correct.

Question 7

CB Corporation was formed as a calendar-year S corporation. Casey is a 60percent shareholder and Bryant is a 40percent shareholder. On September 30, 2020, Bryant sold his CB shares to Don. CB reported business income for 2020 as follows: (Assume that there are 365 days in the year.)
   How much 2020 income is allocated to each shareholder if CB uses its normal accounting rules to allocate income to the specific periods in which it was actually earned?

Accepted Answer

Casey is allocated $438,000 of

Question 8

Clampett, Incorporated, has been an S corporation since its inception. On July 15, 2021, Clampett, Incorporated, distributed $50,000 to J.D. His basis in his Clampett, Incorporated, stock on January 1, 2021, was $30,000. For 2021, J.D. was allocated $10,000 of ordinary income from Clampett, Incorporated, and no separately stated items. What is J.D.'s basis in his Clampett, Incorporated, stock after all transactions in 2021?

Accepted Answer

A) $40,000 
B) $30,000 
C) $20,000 
D) ($10,000) 
E) None of the choices are correct. 
A) $40,000 
B) $30,000 
C) $20,000 
D) ($10,000) 
E) None of the choices are correct.

Question 9

Suppose that at the beginning of 2020 Jamaal's basis in his S corporation stock is $1,000 and he has a $10,000 debt basis associated with a $10,000 loan he made to the S corporation. In 2020, Jamaal's share of S corporation income is $4,000, and he received a $7,000 distribution from the S corporation. How muchtotal income does Jamaal report in 2020 from these transactions?

Accepted Answer

A) $0 
B) $4,000 
C) $6,000 
D) $7,000 
E) None of the choices are correct. 
A) $0 
B) $4,000 
C) $6,000 
D) $7,000 
E) None of the choices are correct.

Question 10

Neal Corporation was initially formed as a C corporation with a calendar year-end. Neal elected S corporation status, effective January 1, 2020. On December 31, 2019, Neal Corporation reported earnings and profits of $150,000. Beginning in 2020, Neal Corporation reported the following information. Does Neal Corporation's S election terminate due to excess net passive income? If so, what is the effective date of the termination?

Accepted Answer

The S election is terminated at the end

Question 11

Assume Joe Harry sells his 25percent interest in Joe's S Corporation, to Tyrone on January 29. Using the specific identification allocation method, how much income does Joe Harry report if Joe's S Corporation, earned $230,000 from January 1 to January 29 and a total of $2,555,000 from January 1 through December 31 (365 days)?

Accepted Answer

A) $57,500 
B) $230,000 
C) $49,000 
D) $196,000 
E) None of the choices are correct. 
A) $57,500 
B) $230,000 
C) $49,000 
D) $196,000 
E) None of the choices are correct.

Question 12

If an S corporation never operated as a C corporation, it may earn passive investment income without fear of an involuntary S election termination.

Accepted Answer

A) True 
 B)False

Question 13

ABC Corporation elected to be taxed as an S corporation when it was initially formed. During its first three years of existence, it reported passive investment income in excess of 25 percent of its gross receipts. Is ABC's S election terminated under the excess passive investment income test? If so, what is the effective date of the termination? If not, why not?

Accepted Answer

No.
The excess passive investment income

Question 14

Vanessa contributed $20,000 of cash and land with a fair market value of $100,000 and an adjusted basis of $40,000 to Cook, Incorporated (an S corporation)when it was formed. The land was encumbered by a $30,000 mortgage executed two years before. What is Vanessa's tax basis in her Cook, Incorporated, stock after formation?

Accepted Answer

A) $20,000 
B) $30,000 
C) $60,000 
D) $80,000 
E) $120,000 
A) $20,000 
B) $30,000 
C) $60,000 
D) $80,000 
E) $120,000

Question 15

Tone Loc and 89 of his biggest fans formed an S corporation, 2hit, Incorporated, as the original 90 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 two close friends. According to the S corporation shareholder limit rules, how many shareholders does 2hit, Incorporated, have?

Accepted Answer

A) 90 
B) 92 
C) 95 
D) 97 
E) None of the choices are correct. 
A) 90 
B) 92 
C) 95 
D) 97 
E) None of the choices are correct.

Question 16

Suppose that at the beginning of 2020 Jamaal's basis in his S corporation stock is $1,800 and he has a $10,800 debt basis associated with a $10,800 loan he made to the S corporation. In 2020, Jamaal's share of S corporation income is $4,800, and he received a $7,800 distribution from the S corporation. What is Jamaal's stock and debt basis after these transactions?

Accepted Answer

A) $0 stock basis; $9,600 debt basis 
B) $0 stock basis; $10,800 debt basis 
C) $6,600 stock basis; $10,800 debt basis 
D) $6,600 stock basis; $3,000 debt basis 
E) None of the choices are correct. 
A) $0 stock basis; $9,600 debt basis 
B) $0 stock basis; $10,800 debt basis 
C) $6,600 stock basis; $10,800 debt basis 
D) $6,600 stock basis; $3,000 debt basis 
E) None of the choices are correct.

Question 17

Jackson is the sole owner of JJJ Corporation (an S corporation). At the end of 2020, Jackson's basis in his JJJ stock and his at-risk amount were $0. Jackson also had a $10,000 suspended ordinary business loss (suspended at the tax-basis and at-risk level). JJJ's S election was terminated effective the end of the day on December 31, 2020. If Jackson contributes $6,000 cash to JJJ on July 1, 2021, and $3,000 cash on January 5, 2022, how much of his $10,000 suspended loss will he be allowed to deduct and how much disappears unused?

Accepted Answer

Jackson will be allowed to deduct $6,000

Question 18

S corporation losses allocated to a shareholderthat are not deductible due to the tax-basis limitation rules are carried over by the shareholder to future years for potential utilization.

Accepted Answer

A) True 
 B)False

Question 19

CB Corporation was formed as a calendar-year S corporation. Casey is a 60percent shareholder and Bryant is a 40percent shareholder. On September 30, 2020, Bryant sold his CB shares to Don. CB reported business income for 2020 as follows: (Assume that there are 365 days in the year.)
   How much 2020 income is allocated to each shareholder if CB Corporation uses the daily method of allocating income?

Accepted Answer

Casey is allocated ${{[a(7)]:#,###}} of

Question 20

An S corporation shareholder's allocable share of business income that is determined to be from a passive activity is considered net investment income for purposes of the net investment income tax.

Accepted Answer

A) True 
 B)False

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

Which of the following is a requirement to be an S corporation?

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

If an S corporation never operated as a C corporation, it may earn passive investment income without fear of an involuntary S election termination.

S corporation losses allocated to a shareholderthat are not deductible due to the tax-basis limitation rules are carried over by the shareholder to future years for potential utilization.

An S corporation shareholder's allocable share of business income that is determined to be from a passive activity is considered net investment income for purposes of the net investment income tax.

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Dependents, and Filing Status

Gross Income and Exclusions

Individual Deductions

Investments

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters

Exam 22: S Corporations

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

Which of the following is a requirement to be an S corporation?

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

If an S corporation never operated as a C corporation, it may earn passive investment income without fear of an involuntary S election termination.

S corporation losses allocated to a shareholderthat are not deductible due to the tax-basis limitation rules are carried over by the shareholder to future years for potential utilization.

An S corporation shareholder's allocable share of business income that is determined to be from a passive activity is considered net investment income for purposes of the net investment income tax.

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Dependents, and Filing Status

Gross Income and Exclusions

Individual Deductions

Investments

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters