Exam 11: US Corporations

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.

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?

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?

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?

Martha,a U.S.citizen,owns 40% of the stock of George Corporation,an electing S corporation.At the time of her death this year,the George stock passes to her estate.The stock is subsequently transferred to a trust provided for in Martha's will.Can the testamentary trust hold the George stock for a two-year period before the S election is terminated?

Identify which of the following statements is true.

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 election of Subchapter S status by a corporation is valid only if all shareholders consent to the election.

Identify which of the following statements is true.

Which one of the following special loss limitations apply to an S corporation?

Identify which of the following statements is false.

If an S corporation inadvertently terminates its election,the IRS

Identify which of the following statements is true.

When a Sec.444 fiscal-year election is made,the S corporation makes required payments to the IRS in order to continue to use the fiscal year as its tax year.Which of the following statements about the tax year is correct?

Identify which of the following statements is false.

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?

Identify which of the following statements is true.

Identify which of the following statements is true.

Caravan Corporation has always been an S corporation.Caravan Corporation is 100% owned by Alan Merten.On January 1,Alan has an adjusted basis of $50,000 in his Caravan stock.During the year,Caravan reports ordinary income of $60,000,a long-term capital gain of $10,000,and a charitable contribution of $5,000.Alan receives a $20,000 cash distribution from Caravan on December 1.What income does Alan recognize from the distribution,and what is his basis in the Caravan stock at year-end?