Exam 11: S Corporations

Robert Elk paid $100,000 for all of the single class of stock of Elkom Corporation, an electing S corporation, when incorporated in January Year 1. Elkom's operating results and dividend distribution are as follows: What is Elk's basis for his Elkom stock on December 31 of 2019?

Identify which of the following statements is true.

The S corporation rules were enacted to allow small corporations to enjoy the nontax advantages of the corporate form of business without being subject to the tax disadvantage of double taxation.

Garret and Hans own all the stock of GH Corporation. Garret sells all his GH stock to Olga on February 12. The next day, GH makes an S election. For the election to apply to the current year, who must consent to the election?

The passive income test relating to an S corporation election is applied

Troy owns 50% of Dot.Com, an e-commerce company. His S corporation stock basis at the beginning of the year is $300,000. Dot.Com has not done well this year and will report an ordinary loss of $875,000. Troy's marginal tax rate for the current year is 35%. What tax issues should Troy consider with respect to the loss?

An electing S corporation has a $30,000 ordinary loss for the nonleap year. On January 1, Beverly and Sonya own equally all of the S corporation stock. On the 146th day of the year, Beverly gives her one-half of the S corporation stock to her daughter Becky. How much of the $30,000 ordinary loss is allocated to Beverly?

The Vanity Corporation organized and began operations in January. The corporation's ten equal shareholders elect to have Vanity taxed as an S corporation, and the election and necessary consents are filed in a timely manner. For its first tax year ended December 31, Vanity has ordinary income of $64,000 and short-term capital gains of $16,000. During the year, it distributes $30,000 in cash equally to its ten shareholders. For the year, how much income should each shareholder report and how should it be characterized?

Identify which of the following statements is true.

Dilley Corporation is an electing S corporation that uses a calendar year as its tax year. On October 31, Dilley's S election is terminated because of the acquisition of stock by an ineligible stockholder. Dilley Corporation shareholder Alan is allocated an S corporation loss for the year, which cannot be used because of the basis limitation. Alan will lose the unused loss if not used by

S shareholders cannot increase the basis of their stock by a ratable share of the general S corporation liabilities.

Identify which of the following statements is false.

For the calendar year, Elk Corporation, an S corporation, has book income of $55,000, which includes $45,000 from operations and a $10,000 net long-term capital gain. During the year, $22,500 is distributed to Elk's three equal shareholders, all of whom are calendar-year taxpayers. What are Elk's total ordinary income and capital gain pass-throughs for the year?

A corporation must make an S election for the current year after March 15 in the case of a calendar-year corporation.

VJ Corporation is to be owned equally by Vic and Joe. The corporation will be formed by exchanging the assets and liabilities of the V & J Manufacturing Partnership for all the corporation's stock on September 1 of the current year. Both shareholders use the calendar year as their tax year and desire to make an S election. What tax issues should Vic and Joe consider with respect to the incorporation?

Identify which of the following statements is true.

Chuck Corporation reports the following results for this year: At the end of this year, Chuck's E&P for its C corporation tax years amount to $30,000. Compute Chuck Corporation's excess net passive income.

Identify which of the following statements is true.

Cactus Corporation, an S Corporation, had accumulated earnings and profits of $100,000 at the beginning of 2018. Tex and Shirley each own 50% of the stock. Cactus does not make any distributions during 2018, but had $200,000 of ordinary income. In 2019, ordinary income was $100,000 and distributions were $100,000. What is Tex's ordinary income for 2018?

A C corporation was formed five years ago and is a fiscal-year taxpayer with a June 30 year-end. The C corporation wants to make an S election for its tax year beginning in the current year. The election must be made by ________ (assuming permission can be obtained to continue using the fiscal year from the IRS).