Exam 11: S Corporations

Clampett, Incorporated, has been an S corporation since its inception. On July 15, 2021, Clampett, Incorporated, distributed $43,000 to J.D. His basis in his Clampett, Incorporated, stock on January 1, 2021, was $41,500. For 2021, J.D. was allocated $10,700 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?

An S corporation election may be voluntarily or involuntarily terminated.

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

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?

An S corporation shareholder calculates his initial basis upon formation of the corporation like a C corporation shareholder.

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)?

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 is not a true statement?

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

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?

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?

Built-in gains recognized 15 years after a C corporation elects to become an S corporation are subject to the built-in gains tax.