Exam 11: S Corporations

During 2017,CDE Corporation (an S corporation since its inception in 2015)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 $100,000 and CDE's tax basis in the property was $130,000.Before considering the effects of the distribution,Clark's basis in his CDE stock was $40,000.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?

Vanessa contributed $20,000 of cash and land with a fair market value of $100,000 and an adjusted basis of $40,000 to Cook,Inc.(an S corporation)when it was formed.The land was encumbered by a $30,000 mortgage executed two years before.What is Vanessa's tax basis in her Cook,Inc.stock after formation?

The built-in gains tax does not apply to S corporations that never operated as C corporations.

ABC Corp.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?

Distributions to owners may not cause the AAA to go negative or to become more negative.

Lamont is a 100% owner of JKL Corporation.JKL has been an S corporation since its inception in 2017.During 2018,JKL distributed $20,000 to Lamont.During 2018,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,Lamont must recognize in each of the following alternative scenarios? Also,what is Lamont's stock basis at the end of 2018 in each of the following scenarios? a.Lamont's stock basis at the beginning of 2018 was $30,000. b.Lamont's stock basis at the beginning of 2018 was $4,000.

S corporations generally recognize gain or loss on each appreciated and depreciated asset they distribute in liquidation.

At the beginning of the year,Clampett,Inc.had $100,000 in its AAA,$60,000 of earnings and profits from prior C corporation years.During the year,Clampett,Inc.earned $50,000 of ordinary income and paid $200,000 in distributions to its shareholders.Assume that J.D.owns 25% of Clampett,Inc.,his basis in Clampett,Inc.at the beginning of the year is $10,000,and his share of the distribution was $50,000.How much,if any,of the distribution is taxable as a capital gain?

Assume that at the end of 2017,Clampett,Inc.(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,Inc.has no corporate E&P and J.D.has a basis of $15,000 in his Clampett,Inc.stock.How much income does J.D.recognize as a result of the distribution?

Clampett,Inc.has been an S corporation since its inception.On July 15,2018,Clampett,Inc.distributed $50,000 to J.D.His basis in his Clampett,Inc.stock on January 1,2018,was $45,000.For 2018,J.D.was allocated $10,000 of ordinary income from Clampett,Inc.and no separately stated items.How much capital gain does J.D.recognize related to Clampett,Inc.in 2018?

S corporations are required to recognize both gains and losses on non-liquidating distributions of property to shareholders.

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

RGD Corporation was a C corporation from its inception in 2013 through 2016.However,it elected S corporation status effective January 1,2017.RGD had $50,000 of earnings and profits at the end of 2016.RGD reported the following information for its 2017 tax year. What amount of excess net passive income tax is RGD liable for in 2017? (Round your answer for excess net passive income to the nearest thousand).

The S corporation rules are less complex for S corporations that have earnings and profits from prior C corporation years than for S corporations that do not have earnings and profits from prior C corporation years.