Exam 11: S: Corporations

Which of the following income items from an S corporation is not considered investment income for purposes of the net investment income tax?

Clampett, Inc. has been an S corporation since its inception. On July 15, 2017, Clampett, Inc. distributed $50,000 to J. D. His basis in his Clampett, Inc. stock on January 1, 2017, was $30,000. For 2017, J. D. was allocated $10,000 of ordinary income from Clampett, Inc. and no separately stated items. What is J. D.'s basis in his Clampett, Inc. stock after all transactions in 2017?

Assume that at the end of 2016, Clampett, Inc. (an S corporation) distributes property (fair market value of $40,000, basis of $5,000) to each of its four equal shareholders (aggregate distribution of $160,000). At the time of the distribution, Clampett, Inc. has no corporate E&P and J. D. has a basis of $50,000 in his Clampett, Inc. stock. How much income does J. D. recognize as a result of the distribution?

Jason is one of 100 shareholders in Jace Corporation. The remaining 99 shareholders are unrelated individual U.S. residents. During the year, Jason gave several of his shares in Jace Corp. to his brother as a birthday present and to his best friend Hal (unrelated to all shareholders in Jace Corp.) as a wedding present. After these gifts, Jace Corp. has 102 shareholders. Is Jace Corp. prohibited from electing to become an S corporation? Explain.

Suppose at the beginning of 2016, Jamaal's basis in his S corporation stock is $1,000, and he has a $10,000 debt basis associated with a $10,000 loan he made to the S corporation. In 2016, Jamaal's share of S corporation income is $4,000, and he received a $7,000 distribution from the S corporation. What is Jamaal's stock and debt basis after these transactions?

During 2016, MVC operated as a C corporation. However, it made an election to be taxed as an S corporation effective January 1, 2017. MVC uses the accrual method of accounting and uses the LIFO method of accounting for its inventory. At the end of 2016 its inventory basis under the LIFO method was $63,000. If MVC had used the FIFO method of accounting for its inventory, it would had a $70,000 basis in its inventory. Finally, MVC's regular taxable income in 2016 was $80,000. What amount of LIFO recapture tax must MVC pay? When must it pay the tax?

The estimated tax rules for S corporations generally follow the rules for C corporations.

XYZ Corporation (an S corporation) is owned by Jane and Rebecca who are each 50% shareholders. At the beginning of the year, Jane's basis in her XYZ stock was $40,000. XYZ reported the following tax information for 2016. Required: a. What amount of ordinary business income is allocated to Jane? b. What is the amount and character of separately stated items allocated to Jane? c. What is Jane's basis in her XYZ corp. stock at the end of the year?

S corporations are required to file Form 1120S, U.S. Income Tax Return for an S Corporation, with the IRS by the fifteenth day of the fourth month after the S corporation's year end. The due date is the fifteenth day of the third month after the S corporation's year end.

Which of the following is not considered a family member for purposes of the S corporation shareholder limit?

Assume that Clampett, Inc. has $200,000 of sales, $150,000 of cost of goods sold, $60,000 of interest income, and $40,000 of dividends. What is Clampett, Inc.'s excess net passive income?

An S corporation shareholder's allocable share of business income that is determined to be from a passive activity is considered net investment income for purposes of the Net Investment Income tax.

Suppose at the beginning of 2016, Jamaal's basis in his S corporation stock is $0, he has a $0 debt basis associated with a $10,000 loan he made to the S corporation and a $5,000 suspended loss from the S corporation. In 2016, Jamaal contributed $8,000 to the S corporation, and the S corporation had ordinary income of $4,000. Assume that Jamaal owns 40% of the S corporation. What is Jamaal's stock and debt basis at the end of 2016?

Separately stated items are tax items that are treated similarly for tax purposes as a shareholder's share of ordinary business income (loss).

The IRS may consent to an early re-election of S corporation status after a termination under which of the following:

XYZ was formed as a calendar-year S corporation with Xavier, Yolinda, and Zach as equal shareholders. On September 15, 2016, XYZ's S election was terminated after Zach sold his XYZ shares (one-third of all shares) to his solely owned C Corporation Zach, Inc. Absent permission from the IRS, what is the earliest date XYZ may again elect to be taxed as an S corporation?

Regarding debt, S corporation shareholders are deemed at risk only for direct loans they make to their S corporation.

If Annie and Andy (each a 30% shareholder in an S corporation) file a revocation on February 10, 2016 to terminate their S corporation's S election, what is the effective date of the S corporation termination (assuming they do not specify one)?

To make an S election effective as of the beginning of the current year, an S corporation must file IRS Form 2553 within 3½ months after the beginning of the year.

MWC is a C corporation that uses the accrual method of accounting. MWC made an S election, effective January, 1 of 2016. The following assets were owned by MWC on December 31, 2015. What is MWC's net unrealized built-in gain when it converts to an S corporation on January 1, 2016?