Exam 22: S Corporations

An S corporation can claim a deduction for its NOL amounts.

Post-termination distributions that are charged against OAA are received tax-free.

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

The corporate-level tax on recognized built-in gains applies when an S corporation disposes of an asset in a taxable disposition within five years after the date on which the S election took effect.

Samantha owned 1,000 shares in Evita, Inc., an S corporation, that uses the calendar year. On October 11, Samantha sells all of her Evita stock. Her stock basis at the beginning of the tax year was $60,000. Evita's ordinary income for the year was $22,000 through the date of sale, and she receives a distribution of $35,000 on May 3rd. Her stock basis at the time of the sale is:

Advise your client how income, expenses, gain, and losses are allocated to shareholders of an S corporation.

You are given the following facts about a solely owned S corporation. What is the shareholder's ending stock basis?

Fred is the sole shareholder of an S corporation in Fort Deposit, Alabama. At a time when his stock basis is $20,000, the corporation distributes appreciated property worth $100,000 (basis of $20,000). Fred's taxable gain is:

Pepper, Inc., an S corporation in Norfolk, Virginia, has revenues of $400,000, taxable interest of $380,000, operating expenses of $250,000, and deductions attributable to the interest income of $140,000. Calculate any passive investme income penalty tax payable by this corporation.

Explain the OAA concept.

A corporation can revoke its S election prospectively.

If a resident alien shareholder moves outside the U.S., the S election is terminated.

A distribution from the other adjustment account (OAA) is not taxable to an S shareholder.

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

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

Only 51% of the shareholders must consent to an S election.

Distributions of appreciated property by an S corporation are not taxable to the entity.

Kinney, Inc., an electing S corporation, holds $5,000 of AEP and $9,000 in AAA at the beginning of the calendar tax year. Kinney has two shareholders, Eric and Maria, each of whom owns 500 shares of Kinney's stock. Kinney's taxable income is $6,000 for the year. Kinney distributes $6,000 to each shareholder on February 1, and it distributes another $3,000 to each shareholder on September 1. How is Eric taxed on the distribution?

At the beginning of the year, the AAA of Rose, Inc. shows a balance of $682,000. During the year, the following items occur. Compute the end-of-year AAA balance.

On December 31, Erica Sumners owns one share of an S corporation's 10 outstanding shares of stock. The basis of Erica's share is $300. The next year the S corporation incurs a loss of $3,650. Determine the amount of the loss allocated to Erica, and calculate her stock basis at the end of the second year.