Exam 11: S Corporations

Assume that at the end of 2020, Clampett, Incorporated (an S corporation) distributes long-term capital gain property (fair market value of $40,000, basis of $25,000) 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 $15,000 in his Clampett, Incorporated, stock. How much total income does J.D. recognize as a result of the distribution?

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

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 $45,000. 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?

Which of the following is not a true statement?

Assume that at the end of 2020, Clampett, Incorporated (an S corporation) distributes property (fair market value of $59,500, basis of $11,500) to each of its four equal shareholders (aggregate distribution of $238,000). At the time of the distribution, Clampett, Incorporated, has no corporate earnings and profits and J.D. has a basis of $52,600 in his Clampett, Incorporated, stock. How much total income does J.D. recognize as a result of the distribution?

Assume that Clampett, Incorporated, has $200,000 of sales, $150,000 of cost of goods sold, $60,000 of interest income, and $40,000 of dividends. What is Clampett, Incorporated's excess net passive income?

Jackson is the sole owner of JJJ Corporation (an S corporation). At the beginning of 2020, Jackson's basis in his JJJ stock was $8,300. For 2020, JJJ reported a ($30,300) ordinary business loss (not a passive loss) and $4,300 of long-term capital gains. Assuming Jackson's tax basis and his at-risk amount are the same, what is Jackson's stock basis at the end of the year and how much of the ordinary business loss is he allowed to deduct in 2020?

S corporations have considerable flexibility in making special profit and loss allocations of operating income.

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?

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?

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.

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?

MWC is a C corporation that uses the accrual method of accounting. MWC made an S election, effective January 1 of 2020. The following assets were owned by MWC on December 31, 2019. What is MWC's net unrealized built-in gain when it converts to an S corporation on January 1, 2020?

Hazel is the sole shareholder of Maple Corporation In 2020 Maple operated as a C corporation and reported $15,100 of taxable income (and earnings and profits). On January 1, 2021, Maple elected S corporation status. During 2021 Maple reported $12,100 of ordinary business income and no separately stated items. It also distributed $25,100 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 $5,100?

RGD Corporation was a C corporation from its inception in 2016 through 2019. However, it elected S corporation status effective January 1, 2020. RGD had $50,000 of earnings and profits at the end of 2019. RGD reported the following information for its 2020 tax year. What amount of excess net passive income tax is RGD liable for in 2020? (Round your answer for excess net passive income to the nearest thousand.)

Clampett, Incorporated, has been an S corporation since its inception. On July 15, 2021, Clampett, Incorporated, distributed $56,000 to J.D. His basis in his Clampett, Incorporated, stock on January 1, 2021, was $31,200. For 2021, J.D. was allocated $10,600 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?

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?

Suppose that at the beginning of 2020 Jamaal's basis in his S corporation stock is $1,700 and he has a $10,700 debt basis associated with a $10,700 loan he made to the S corporation. In 2020, Jamaal's share of S corporation income is $4,700, and he received a $7,700 distribution from the S corporation. What is Jamaal's stock and debt basis after these transactions?

Jackson is the sole owner of JJJ Corporation (an S corporation). At the beginning of 2020, Jackson's basis in his JJJ stock was $8,000. For 2020, JJJ reported a ($30,000) ordinary business loss (not a passive loss) and $4,000 of long-term capital gains. Assuming Jackson's tax basis and his at-risk amount are the same, what is Jackson's stock basis at the end of the year and how much of the ordinary business loss is he allowed to deduct in 2020?

Parker is a 100percent shareholder of Johnson Corporation (an S corporation). At the beginning of 2020, Parker's basis in his Johnson Corporation stock was $14,000. During 2020, Parker loaned $20,000 to Johnson Corporation and Johnson Corporation reported a $25,000 ordinary business loss and no separately stated items. In 2021, Johnson corporation reported $8,000 of ordinary business income. a. How much of the $25,000 ordinary loss allocated to Parker clears the tax-basis hurdle for deductibility in 2020? b. What is Parker's stock and debt basis at the end of 2020? c. What is Parker's stock and debt basis at the end of 2021?