Exam 11: S Corporations

An S corporation reports ordinary income of $120,000 after deducting $20,000 for Fred's salary. Fred and his three children own the S corporation equally. The IRS determines Fred's stock transfer to his three children is not bona fide. Reasonable compensation for Fred is $40,000. How much of the S corporation's $140,000 pre-salary income must be reported by Fred?

Identify which of the following statements is true.

S shareholders are allocated shares of income, gain, loss, deduction, and credit based on their number of shares of stock and period of time for which the stock is held.

Shanghai Corporation was organized and elected S status in the current year. How much passive investment income can Shanghai earn and retain its S status?

Trusts that can own S corporation stock include all of the following except

Corporations and partnerships can be S corporation shareholders.

By electing to use the S corporation's tax accounting method to allocate profits or losses between the C short year and S short year in the termination year, the corporation can shift losses into an S short year where the shareholders obtain an immediate benefit at a marginal tax rate of up to 37%, or it can shift profits into a C short year to take advantage of the 21% corporate tax rate.

Identify which of the following statements is true.

Pressley Corporation was incorporated on January 1, 2004. The corporation made its S election on March 1, 2008. The corporation retains an E&P balance from its C corporation days. During the current year, it made a cash distribution to its sole shareholder Robert Pressley. What is the proper sequence in reducing the corporate earnings accounts for the distribution?

Potter Corporation reports the following results for the current year: At the end of the year, Potter's Subchapter C E&P is $50,000. What is the amount of Potter's excess net passive income?

Identify which of the following statements is false.

Alligood Corporation has two classes of common stock outstanding. The Class A and Class B common stock give the shareholders identical rights and interests in the profits and assets of the corporation. Class A stock has one vote per share. Class B stock is nonvoting. Alligood Corporation may

If an S corporation inadvertently terminates its election, the IRS

Boxer Corporation, a C corporation, elects on June 30 of last year to make an S election for the current year. The net unrealized built-in gains at the beginning of the current year are $300,000. The net recognized built-in gains in the current year are $110,000. What is Boxer's built-in gains tax for the current year?

If losses are suspended due to the lack of basis in S corporation stock, do the losses expire when the S election terminates?

Zinc Corporation is created in the current year and promptly makes an S election. How much passive income can it earn this year without fear of losing its S corporation status or being subject to the Sec. 1375 tax on excess net passive income?

King Corporation, a cash method taxpayer that uses the calendar year as its tax year, was incorporated on June 1, 1984. The corporation made its initial S election on December 1 of last year, effective for the current tax year. Earnings and profits of $60,000 have been retained from C corporation tax years. Which one of the following events results in the recognition of a built-in gain?

Up to six generations of a family are considered as one shareholder for purposes of the 100-shareholder limit.

Power Corporation reports the following results: At the end of the year, Power's Subchapter C E&P is $50,000. What is Power Corporation's excess net passive income and its excess net passive income tax for the year?

A testamentary trust can be an S shareholder for two years, beginning on the date the stock transfers to the trust.