Exam 11: S Corporations

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?

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

If Annie and Andy (each a 30percent shareholder in a calendar-year S corporation) file a revocation statement on March 20, 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)?

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. Assume that Clampett, Incorporated, has $1,000 of earnings and profits from prior C corporation years and that the corporate tax rate is 21 percent. Clampett, Incorporated's taxable income would have been $122,000 this year if it had been a C corporation. What is Clampett, Incorporated's excess net passive income tax?

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 $200,000 from January 1 to January 29 and a total of $1,460,000 from January 1 through December 31 (365 days)?

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?

Which of the following S corporations would be subject to the excess net passive income tax?

Supposethat at the beginning of 2020 Jamaal's basis in his S corporation stock is $0, he has a $0 debt basis associated with a $10,000 loan he made to the S corporation, andhe has a $5,000 suspended loss from the S corporation. In 2020, Jamaal contributed $8,000 to the S corporation, and the S corporation had ordinary income of $4,000. Assume that Jamaal owns 40percent of the S corporation. How much net income or loss does Jamaal report this year from the S corporation?

At the beginning of the year, Harold, Missy, and Ranae formed HMR Corporation as an S corporation. For one-third of the HMR stock, Harold contributed $50,000 cash and land with a fair market value of $75,000 and adjusted tax basis of $60,000. The land was subject to a $45,000 mortgage, which was assumed by HMR on the formation. Missy and Ranae each contributed $80,000 cash to HMR for one-third of the HMR stock. What is Harold's basis in the HMR stock after the formation? What is Missy's basis in her HMR stock after the formation?

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 $16,000 loan he made to the S corporation, and he has a $11,000 suspended loss from the S corporation. In 2020, Jamaal contributed $14,000 to the S corporation, and the S corporation had ordinary income of $10,000. Assume that Jamaal owns 40percent of the S corporation. How much net income or loss does Jamaal report this year from the S corporation?

In 2021, 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.

On March 15, 2020, J.D. sold his Clampett, Incorporated (an S corporation) shares to Ellie Mae, Incorporated (a C corporation), terminating Clampett, Incorporated's S election on March 15, 2020. Absent permission from the IRS, what is the earliest date Clampett, Incorporated, may again elect to be taxed as an S corporation?

SEC Corporation has been operating as a C corporation since 2017. It elected to become an S corporation, effective January 1, 2020. On December 31, 2019, SEC reported a net unrealized built-in gain of $16,000. In addition to other transactions in 2020, SEC sold inventory it owned at the beginning of 2020 (it did not sell any other assets it owned at the beginning of 2020). At the beginning of the year, the inventory it sold had a fair market value of $46,000 and a FIFO tax basis of $27,000. SEC sold the inventory for $34,000. If SEC had been a C corporation in 2020, its taxable income would have been $49,000. How much built-in gains tax must SEC pay in 2020? Assume the corporate tax rate is 21%.

Lamont is a 100percent owner of JKL Corporation. JKL has been an S corporation since its inception in 2020. During 2021, JKL distributed $20,000 to Lamont. During 2021, JKL reported $5,000 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 $30,000. b. Lamont's stock basis at the beginning of 2021 was $4,000.

During 2020, CDE Corporation (an S corporation since its inception in 2018) liquidates this year by distributing a parcel of land to its sole shareholder, Clark. The fair market value of the land at the time of the distribution was $113,000 and CDE's tax basis in the property was $127,400. Before considering the effects of the distribution, Clark's basis in his CDE stock was $53,000. What amount of loss, if any, does CDE recognize on the distribution? What amount of income, if any, does Clark recognize on the distribution and what is his basis in the land?

At the beginning of the year, Clampett, Incorporated, had $100,000 in its AAA and $60,000 of earnings and profits from prior C corporation years. During the year, Clampett, Incorporated, earned $50,000 of ordinary income and paid $200,000 in distributions to its shareholders. Assume that J.D. owns 25percent of Clampett, Incorporated, his basis in Clampett, Incorporated, at the beginning of the year is $30,000, and his share of the distribution was $50,000. How much, if any, of the distribution is taxable as a dividend?

J.D. formed Clampett, Incorporated, as a C corporation (calendar tax year) with J.D., Granny, and Jethro, Incorporated (a C corporation) as shareholders. On January 15, 2020, Jethro, Incorporated, sold all its shares to Jane Hathaway. On February 28, 2020, Clampett, Incorporated, filed an S corporation election, with J.D., Granny, and Jane all consenting to the election. What is the earliest effective date of the S election?