Exam 12: S Corporations

Apple,Inc.,a cash basis S corporation in Orange,Texas,formerly was a C corporation.Apple has the following assets and liabilities on January 1,2008,the date the S election is made. During 2008,Apple collects the accounts receivable and pays the accounts payable.The land is sold for $3 million,and taxable income for the year is $590,000.What is Apple's built-in gains tax?

The § 1202 exclusion of gain on disposition of S corporation stock is not available.

On January 2,2007,David loans his S corporation $10,000,and by the end of 2007 David's stock basis is zero and the basis in his note has been reduced to $8,000.During 2008,the company's operating income is $10,000.The company also makes distributions to David of $11,000.Which statement is correct?

Most limited liability partnerships can own stock in an S corporation.

Explain how the domestic production activities deduction is used for an S corporation.

During 2008,Houston Nutt,the sole shareholder of a calendar year S corporation,received a distribution of $16,000.On December 31,2007,his stock basis was $4,000.The corporation earned $11,000 ordinary income during the year.It has no accumulated E & P.Which statement is correct?

Passive investment income includes capital gains from the sale of stocks and securities after 2007.

Match the term with the proper response. There may be more than one responses for each term. a.Includes gross receipts derived from royalties, passive rents, dividends, interest, etc. b.Penalty tax to stop an S corporation from avoiding the corporate tax on disposition of appreciated property. c.Cumulative total of undistributed non-separately stated items. d.Tax-free distribution. e.Generated under old S corporation rules (pre-1983). f.Items that affect basis but not AAA go here. g.Taxed as a dividend. -AAA

An S corporation reports $10,000 DPGR and $7,500 of wages,and the S corporation's QPAI is $2,500.Shelly has a 50% interest in the S corporation.All expenses that reduce DPGR are from wages,and all wages paid relate to DPGR.How much QPAI and wages are allocated to Shelly?

Fred is the sole shareholder of an S corporation in Fort Deposit,Alabama.At a time when his stock basis is $10,000,the corporation distributes appreciated property worth $100,000 (basis of $10,000).There is no built-in gain.Fred's taxable gain is:

An S corporation can be a shareholder in another corporation.

Which statement is incorrect with respect to an S shareholder's consent?

Which type of distribution from an S corporation is taxed at the 5/15% rate?

A C corporation elects S status.The corporation may be subject to a built-in gains tax on which of the following assets?

On January 1,Bobby and Alice own equally all of the stock of an electing S corporation called Prairie Dirt Delight.The soil company has a $90,000 loss for a non-leap year.On the 219th day of the year,Bobby sells his one-half of the stock to his son,Naresh.How much of the $90,000 loss is allocated to Alice?

An S corporation may be subject to the following tax.

If a loan's basis has been reduced and has not been restored,income is recognized when the S corporation _____________ the shareholder.

Non-separately computed loss ____________________ a S shareholder's stock basis.

Brew,an S corporation,has gross receipts of $190,000 and gross income of $170,000.Brew has AEP of $22,000 and ordinary income of $30,000.It has passive investment income of $100,000,with $40,000 of expenses directly related to the production of passive investment income.Calculate Brew's excess net passive income and any passive investment income penalty tax.

You are given the following facts about a solely owned S corporation,and you are asked to prepare the shareholder's ending stock basis.