Exam 22: S: Corporations

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Milke, Inc., an S corporation, has gross receipts of $190,000 and gross income of $170,000.Milke has AEP of $22,000 and ordinary income of $29,000.The company reports passive investment income of $100,000, with $40,000 of expenses directly related to the production of passive investment income.Calculate Milke's excess net passive income and any passive investment income penalty tax.

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Question 1

Correct Answer:

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The S corporation incurred net passive investment income of $60,000 [$100,000 (passive investment income) - $40,000 (excess incurred in connection with earning the passive investment income)].Since 25% of $190,000 (gross receipts) = $47,500, passive investment income (PII) beyond the amount allowed is $52,500 ($100,000 - $47,500).
Thus, the § 1375 penalty tax is $10,150 (35% ´ $29,000), because taxable income is less than ENPI.

You are given the following facts about a 40% owner of an S corporation, and you are asked to prepare her ending stock basis.

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Question 2

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A cash basis calendar year C corporation reports $100,000 of accounts receivable on the date of its conversion to an S corporation on February 14.By the end of the year, $60,000 of these receivables are collected.Calculate any built-in gains tax, assuming that there is sufficient taxable income.

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Question 3

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

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Question 4

Any distribution of cash or property by a corporation that does not exceed the balance of AAA with respect to the stock during a post-termination transition period of approximately one year is applied against and reduces the adjusted basis of the stock.

(True/False)

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Question 5

List some of the separately stated items listed on Schedule K of the Form 1120S.

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Question 6

The § 1374 tax is a corporate-level tax on any built-in gain recognized in 2012 when an S corporation disposes of an asset in a taxable disposition within 10 tax years after the date on which the S election took effect.

(True/False)

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Question 7

Since loss property receives a in basis without any loss recognition, S corporation distributions of loss property should be .

(Short Answer)

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Question 8

Net operating losses incurred before an S election do not flow through to the shareholders once the election is in effect.

(True/False)

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Question 9

Separately stated items are listed on Schedule _________________________ of the Form 1120S.

(Short Answer)

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Question 10

Most IRAs can own stock in an S corporation.

(True/False)

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Question 11

Distribution of loss property by an S corporation to a shareholder generally should be _________________.

(Short Answer)

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Question 12

Tax-exempt income is a Schedule K item for an S corporation.

(True/False)

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Question 13

No maximum or minimum dollar sales or capitalization restrictions apply to S corporations.

(True/False)

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Question 14

Blue Corporation elects S status effective for tax year 2012. As of January 1, 2012, Blue's assets were appraised as follows. In each of the following situations, calculate any built-in gains tax, assuming that the highest corporate tax rate is 35%. C corporation taxable income would have been $100,000.

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Question 15

A distribution from OAA is not taxable.

(True/False)

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Question 16

An S shareholder's basis is increased by stock purchases and capital contributions.

(True/False)

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Question 17

Which statement is incorrect about an S corporation?

(Multiple Choice)

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Question 18

All tax preference items flow through the S corporation, to be included in the shareholders' AMT calculations.

(True/False)

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Question 19

Claude Bergeron sold 1,000 shares of Ditta, Inc., an S corporation, for $12,000.He had owned the stock for three years and had a stock basis of $111,000 in the shares.Claude is single, and he is the original owner of the § 1244 stock shares.Calculate the appropriate tax treatment.

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Question 20

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Exam 22: S: Corporations

You are given the following facts about a 40% owner of an S corporation, and you are asked to prepare her ending stock basis.

A cash basis calendar year C corporation reports $100,000 of accounts receivable on the date of its conversion to an S corporation on February 14.By the end of the year, $60,000 of these receivables are collected.Calculate any built-in gains tax, assuming that there is sufficient taxable income.

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

Any distribution of cash or property by a corporation that does not exceed the balance of AAA with respect to the stock during a post-termination transition period of approximately one year is applied against and reduces the adjusted basis of the stock.

List some of the separately stated items listed on Schedule K of the Form 1120S.

The § 1374 tax is a corporate-level tax on any built-in gain recognized in 2012 when an S corporation disposes of an asset in a taxable disposition within 10 tax years after the date on which the S election took effect.

Since loss property receives a ____________________ in basis without any loss recognition, S corporation distributions of loss property should be ____________________.

Net operating losses incurred before an S election do not flow through to the shareholders once the election is in effect.

Separately stated items are listed on Schedule _________________________ of the Form 1120S.

Most IRAs can own stock in an S corporation.

Distribution of loss property by an S corporation to a shareholder generally should be _________________.

Tax-exempt income is a Schedule K item for an S corporation.

No maximum or minimum dollar sales or capitalization restrictions apply to S corporations.

A distribution from OAA is not taxable.

An S shareholder's basis is increased by stock purchases and capital contributions.

Which statement is incorrect about an S corporation?

All tax preference items flow through the S corporation, to be included in the shareholders' AMT calculations.

Claude Bergeron sold 1,000 shares of Ditta, Inc., an S corporation, for $12,000.He had owned the stock for three years and had a stock basis of $111,000 in the shares.Claude is single, and he is the original owner of the § 1244 stock shares.Calculate the appropriate tax treatment.

An Introduction to Taxation and Understanding the Federal Tax Law

Working With the Tax Law

Computing the Tax

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: in General

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, Cost Recovery, Amortization, and Depletion

Deductions: Employee and Self-Employed Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Tax Credits and Payments

A: Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 1

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges-Part 2

Property Transactions: Capital Gains and Losses, 1231, Recapture Provisions

Alternative Minimum Tax

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

Partnerships

Exempt Entities

Multistate Corporate Taxation

Taxation of International Transactions

Tax Practice and Ethics

Income Taxation of Trusts and Estates

Filters

Since loss property receives a in basis without any loss recognition, S corporation distributions of loss property should be .