Exam 22: S Corporations

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

Distributions to owners may not cause the AAA to go negative or to become more negative.

Bobby T (95percent owner)would like to elect S corporation status for DJ, Incorporated, but Dallas (5percent owner)does not want to elect S corporation status. Bobby T cannot elect S status for DJ, Incorporated, without Dallas's consent.

If Annie and Andy (each a 30percent shareholder in a calendar-year S corporation)file a revocation statement on February 10, 2020, to terminate their S corporation's S election, what is the effective date of the S corporation termination (assuming they do not specify one)?

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.

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 an S corporation shareholder sells her stock to a nonresident alien, it will automatically terminate the S election.

S corporations generally recognize gain or loss on each appreciated and depreciated asset they distribute in liquidation.

S corporations face the same restrictionsas partnerships and C corporations on using the cash method of accounting.

Differences in voting powers are permissible across shares of S corporation stock as long as the shares have identical distribution and liquidation rights.

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

S corporation shareholders are not allowed to include any S corporation-level debt in their stock basis.

Assume Joe Harry sells his 25percent interest in Joe's S Corporation, to Tyrone on January 29. Using the daily allocation method, how much income does Joe Harry report if Joe's S Corporation,earned $265,000 from January 1 to January 29 and a total of $3,832,500 from January 1 through December 31 (365 days)?

S corporations are not entitled to a dividends received deduction.

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 the total amount of income J.D. recognizes related to Clampett, Incorporated, in 2021?

S corporations are required to recognize both gains and losses on nonliquidating distributions of property to shareholders.

Assume that at the end of 2020, Clampett, Incorporated (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, Incorporated, has no corporate earnings and profits and J.D. has a basis of $50,000 in his Clampett, Incorporated, stock. How much total income does J.D. recognize as a result of the distribution?

Jason is one of 100 shareholders in Jace Corporation. The remaining 99 shareholders are unrelated individual U.S. residents. During the year, Jason gave several of his shares in Jace Corporation to his brother as a birthday present and to his best friend, Hal (unrelated to all shareholders in Jace Corporation), as a wedding present. After these gifts, Jace Corporation has 102 shareholders. Is Jace Corporation prohibited from electing to become an S corporation? Explain.

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

XYZ was formed as a calendar-year S corporation with Xavier, Yolinda, and Zach as equal shareholders. On September 15, 2020, XYZ's S election was terminated after Zach sold his XYZ shares (one-third of all shares)to his solely owned C corporation, Zach, Incorporated Absent permission from the IRS, what is the earliest date XYZ may again elect to be taxed as an S corporation?