Exam 22: S Corporations

For S corporations with earnings and profits from prior C corporation years, the taxation of distributions is very similar to the rules for partnerships.

If Annie and Andy (each a 30% shareholder) file a revocation on March 18, 2014 to terminate their S corporation's S election, what is the effective date of the S corporation termination (assuming they do not specify one)?

ABC was formed as a calendar-year S corporation with Alan, Brenda and Conner as equal shareholders. On May 1, 2014, ABC's S election was terminated after Conner sold his ABC shares (one-third of all shares) to his solely owned C corporation Conner, Inc. ABC reported business income for 2014 as follows (assume that there are 365 days in the year): Period Income January 1 through April 30 (120 days) \ 200,000 May 1 through December 31 (245 days) 530,000 January 1 through December 31 \ 730,000 If ABC uses the specific identification method to allocate income, how much will it allocate to the S corporation short year and C corporation short year?

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 Cook, Inc. after formation?

CB Corporation was formed as a calendar-year S corporation. Casey is a 60% shareholder and Bryant is a 40% shareholder. On September 30, 2014, Bryant sold his CB shares to Don. CB reported business income for 2014 as follows (assume that there are 365 days in the year): Period Income January 1 through September 30(273 days ) \ 200,000 October 1 through December 31(92 days ) January 1 through December 31 \ 730,000 How much 2014 income is allocated to each shareholder if CB corp. uses the daily method of allocating income?

Suppose at the beginning of 2014, Jamaal's basis in his S corporation stock was $27,000 and that Jamaal has loaned the S corporation $10,000. During 2014, the S corporation reported an $80,000 ordinary business loss and no separately stated items. How much of the ordinary loss is deductible by Jamaal if he owns 50% of the S corporation?

Which of the following income items from an S corporation is not considered investment income for purposes of the Net Investment Income tax?

Shea is a 100% owner of Mets Corporation (an S corporation). Mets is a calendar year taxpayer. On February 16, 2014, Mets filed an election to terminate its S election. Assuming Mets does not specify an effective date for the termination, what is the effective date of the termination?

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

In general, an S corporation shareholder makes increasing adjustments to her basis first, followed by adjustments that decrease basis.

Bobby T (75% owner) would like to terminate the S corporation status for DJ, Inc. Dallas (5% owner) does not want to terminate the S corporation status. Bobby T can terminate the S status for DJ, Inc. without Dallas' consent.

MWC is a C corporation that uses the accrual method of accounting. MWC made an S election, effective January, 1 of 2014. The following assets were owned by MWC on December 31, 2013. Asset Fair Market Value (FMV) Adjusted basis (AB) Cash \ 40,000 \ 40,000 Accounts receivable 15,000 15,000 Inventory (FIFO) 20,000 25,000 Land Totals \ 200,000 \ 180,000 What is MWC's net unrealized built-in gain when it converts to an S corporation on January 1, 2014?

An S corporation can use a non-calendar year-end if it can establish a business purpose for an alternative year end.

S corporations recognize gains and losses on distributions of property.

S corporations are required to file Form 1120S, U.S. Income Tax Return for an S Corporation, with the IRS by the fifteenth day of the fourth month after the S corporation's year end.

Unlike partnerships, adjustments that decrease an S corporation shareholder's basis may reduce it below zero.

Suppose at the beginning of 2014, Jamaal's basis in his S corporation stock is $1,000, and he has a $10,000 debt basis associated with a $10,000 loan he made to the S corporation. In 2014, Jamaal's share of S corporation income is $4,000, and he received a $7,000 distribution from the S corporation. How much income does Jamaal report in 2014 from these transactions?

Clampett, Inc. converted to an S corporation on January 1, 2014. At that time, Clampett, Inc. 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 2015, Clampett, Inc. sells its entire inventory for $60,000 (Basis $30,000). Assume the corporate tax rate is 35% and that Clampett Inc.'s taxable income would have been a $50,000 loss in 2015 if it had been a C corporation. In 2016, Clampett, Inc.'s taxable income would have been $100,000 if it had been a C corporation. How much built-in gains tax does Clampett, Inc. pay in 2015? In 2016?

If Annie and Andy (each a 30% shareholder) file a revocation on February 10, 2014 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, Inc. has $200,000 of sales, $150,000 of cost of goods sold, $60,000 of interest income, and $40,000 of dividends. What is Clampett, Inc.'s excess net passive income?