Exam 22: S Corporations

Clampett, Incorporated, converted to an S corporation on January 1, 2020. At that time, Clampett, Incorporated, had cash ($40,000), inventory (FMV $60,000, basis $30,000), accounts receivable (FMV $40,000, basis $40,000), and equipment (FMV $60,000, basis $80,000). In 2021, Clampett, Incorporated, sells its entire inventory for $60,000 (basis $30,000). Assume the corporate tax rate is 21 percent and that Clampett, Incorporated, had a $20,000 net operating loss carryover from its prior C corporation years. How much built-in gains tax does Clampett, Incorporated, pay in 2021?

Separately stated items are tax items that are treated similarly for tax purposes as a shareholder's share of ordinary business income (loss).

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

Hazel is the sole shareholder of Maple Corporation In 2020 Maple operated as a C Corporation and reported $15,000 of taxable income (and earnings and profits). On January 1, 2021, Maple elected S Corporation status. During 2021 Maple reported $12,000 of ordinary business income and no separately stated items. It also distributed $25,000 to Hazel. What is the amount and character of income Hazel must recognize on the distribution? What is Hazel's stock basis at the end of 2021 (after accounting for the distribution)if her basis at the beginning of the year was $5,000?

The specific identification method is a method an S corporation may use to allocate its income across short tax years that result from an involuntary S election termination.

Suppose that at the beginning of 2020 Jamaal's basis in his S corporation stock was $32,000 and Jamaal has directly loaned the S corporation $9,910. During 2020, the S corporation reported an $84,500 ordinary business loss and no separately stated items. How much of the ordinary loss is deductible by Jamaal if he owns 50percent of the S corporation?

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. How much capital gain does J.D. recognize related to Clampett, Incorporated, in 2021?

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?

Which of the following is not a true statement?

Lamont is a 100percent owner of JKL Corporation. JKL has been an S corporation since its inception in 2020. During 2021, JKL distributed $21,800 to Lamont. During 2021, JKL reported $6,800 of business income and no separately stated items. What is the amount and character of the gain on the distribution, if any, that Lamont must recognize in each of the following alternative scenarios? Also, what is Lamont's stock basis at the end of 2021 in each of the following scenarios? a. Lamont's stock basis at the beginning of 2021 was $30,900. b. Lamont's stock basis at the beginning of 2021 was $4,180.

Clampett, Incorporated, converted to an S corporation on January 1, 2020. At that time, Clampett, Incorporated, had cash ($40,000), inventory (FMV $60,000, basis $30,000), accounts receivable (FMV $40,000, basis $40,000), and equipment (FMV $60,000, basis $80,000). In 2021, Clampett, Incorporated, sells its entire inventory for $60,000 (basis $30,000). Assume the corporate tax rate is 21 percent. Clampett, Incorporated's taxable income in 2021 would have been $1,000,000 if it had been a C corporation. How much built-in gains tax does Clampett, Incorporated, pay in 2021?

Suppose a calendar-year C corporation, NewCorp, Incorporated, was formed on January 1, 2020, and all of the shareholders (Hassell, Richie Cunningham, and Arnold's, Incorporated, a C corporation)filed a Form 2553 to elect S corporation status on April 14, 2020 When is the S election effective?

ABC was formed as a calendar-year S corporation with Alan, Brenda, and Conner as equal shareholders. On May 1, 2020, ABC's S election was terminated after Conner sold his ABC shares (one-third of all shares)to his solely owned C corporation, Conner, Incorporated ABC reported business income for 2020 as follows: (Assume that there are 365 days in the year.) If ABC uses the specific identification method to allocate income, how much will it allocate to the S corporation short year and C corporation short year?

Clampett, Incorporated, has been an S corporation since its inception. On July 15, 2021, Clampett, Incorporated, distributed $49,500 to J.D. His basis in his Clampett, Incorporated, stock on January 1, 2021, was $39,500. For 2021, J.D. was allocated $11,100 of ordinary income from Clampett, Incorporated, and no separately stated items. How much capital gain does J.D. recognize related to Clampett, Incorporated, in 2021?

Clampett, Incorporated, converted to an S corporation on January 1, 2020. At that time, Clampett, Incorporated, had cash ($40,000), inventory (FMV $60,000, basis $30,000), accounts receivable (FMV $40,000, basis $40,000), and equipment (FMV $60,000, basis $80,000). In 2021, Clampett, Incorporated, sells its entire inventory for $60,000 (basis $30,000). Assume the corporate tax rate is 21 percent and that Clampett Incorporated's taxable income would have been a $50,000 loss in 2021 if it had been a C corporation. In 2022, Clampett, Incorporated's taxable income would have been $100,000 if it had been a C corporation. How much built-in gains tax does Clampett, Incorporated, pay in 2021? In 2022?

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 $20,450. In 2021, J.D. made additional capital contributions of $5,450 on March 15 and $13,350 on September 20. How much loss may J.D. deduct in 2021?

An S corporation can use a noncalendar year-end if it can establish a business purpose for an alternative year-end.

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

XYZ Corporation (an S corporation)is owned by Jane and Rebecca, who are each 50percent shareholders. At the beginning of the year, Jane's basis in her XYZ stock was $42,000. XYZ reported the following tax information for 2020. Required: a. What amount of ordinary business income is allocated to Jane? b. What is the amount and character of separately stated items allocated to Jane? c. What is Jane's basis in her XYZ Corporation stock at the end of the year?

The IRS may consent to an early reelection of S corporation status after a termination under which of the following?