Exam 22: S: Corporations

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.

Tax-exempt income is not separately stated on Schedule K of Form 1120S.

To make a valid S election, the entity must file a properly completed Form ____________________.

Individuals Adam and Bonnie form an S corporation, with Adam contributing cash of $100,000 for a 50% interest and Bonnie contributing appreciated ordinary income property with an adjusted basis of $20,000 and a fair market value of $100,000.

An S corporation shareholder's basis includes his or her direct investments plus a ratable share of any corporate liabilities.

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.

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

Which statement is incorrect with respect to filing an S election?

An S corporation's separately stated items are identical to those separately stated by partnerships.

Which item does not appear on Schedule K of Form 1120S?

Mock Corporation converts to S corporation status in 2012.Mock used the LIFO inventory method in 2011 and had a LIFO inventory of $435,000 (FIFO value of $550,000) on the date of the S election.How much tax must be added to the 2011 corporate tax liability, assuming that Mock is subject to a 35% tax rate.

Which item has no effect on an S corporation's AAA?

Any excess of S corporation losses or deductions over the shareholder's combined stock and debt basis is suspended until there is a subsequent stock or debt basis.

The maximum number of shareholders in an S corporation is:

Shareholders may deduct losses in excess of their basis in S corporation stock when a shareholder holds a loan basis of zero.

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

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.

As a general rule, S corporation treatment is not advantageous when the individual tax rate far exceeds the applicable corporate tax rate.

Only 80% of the shareholders must consent to an S election.

Outline the requirements that an entity must meet to elect S corporation status.