Exam 17: S: Corporations

AIRE was initially formed as an S corporation three years ago. AIRE has four equal shareholders Adam, Irene, Raymond, and Ethan. Raymond and Ethan would like to terminate the S election. However, Adam and Irene are opposed to the idea. Can Raymond and Ethan make a voluntary election to terminate the S election without the consent of Adam and/or Irene? Explain.

Which of the following is prohibited from being an S corporation shareholder?

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

During 2016, CDE Corporation (an S corporation since its inception in 2014) distributed a parcel of land to its sole shareholder Clark. The fair market value of the land at the time of the distribution was $80,000 and CDE's tax basis in the property was $30,000. Before considering the effects of the distribution, Clark's basis in his CDE stock was $10,000. What amount of gain, if any, does CDE recognize on the distribution? What amount of income, if any, does Clark recognize on the distribution and what is Clark's basis in his CDE stock after accounting for the distribution?

An S corporation shareholder calculates his initial basis upon formation of the corporation like a C corporation shareholder.

Which of the following is not a true statement?

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

Clampett, Inc. (an S corporation) previously operated as a C corporation. Under general rules, distributions from Clampett, Inc. are deemed to be paid in the following order:

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 $45,000. For 2017, J. D. was allocated $10,000 of ordinary income from Clampett, Inc. and no separately stated items. How much capital gain does J. D. recognize related to Clampett, Inc. in 2017?

S corporations may have no more than 50 shareholders, but members of the same family only count as one shareholder.

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?

Assume Joe Harry sells his 25% interest in Joe's S Corp., Inc. to Tyrone on January 29. Using the daily allocation method, how much income does Joe Harry report if Joe's S Corp., Inc. earned $200,000 from January 1 to January 28 and a total of $1,460,000 from January 1 through December 31 (365 days)?

An S election is terminated if the S corporation has passive investment income in excess of 20 percent of gross receipts for three consecutive years.

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. How much income does Jamaal report in 2016 from these transactions?

At the beginning of the year, Harold, Missy, and Ranae formed HMR Corporation as an S corporation. For one-third of the HMR stock, Harold contributed $50,000 cash and land with a fair market value of $75,000 and adjusted tax basis of $60,000. The land was subject to a $45,000 mortgage, which was assumed by HMR on the formation. Missy and Ranae each contributed $80,000 cash to HMR for one-third of the HMR stock. What is Harold's basis in the HMR stock after the formation? What is Missy's basis in her HMR stock after the formation?

At the beginning of the year, Clampett, Inc. had $100,000 in its AAA, $60,000 of earnings and profits from prior C corporation years. During the year, Clampett, Inc. earned $50,000 of ordinary income and paid $200,000 in distributions to its shareholders. Assume that J. D. owns 25% of Clampett, Inc., his basis in Clampett, Inc. at the beginning of the year is $10,000, and his share of the distribution was $50,000. How much, if any, of the distribution is taxable as a capital gain?

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. How much net income or loss does Jamaal report this year from the S corporation?

Which of the following is not an adjustment to an S corporation shareholder's stock basis?

S corporation distributions of cash are not taxable to the shareholder to the extent of the combined shareholder's stock and debt basis.

S corporations are not entitled to a dividends received deduction.