Exam 22: S Corporations

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?

Which of the following statements is correct regarding S corporation estimated taxes?

Unlike partnerships, adjustments that decrease an S corporation shareholder's basis may reduce it below zero.

Built-in gains recognized fifteen years after a C corporation elects to become an S corporation are subject to the built-in gains tax.

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

The built-in gains tax does not apply to S corporations that never operated as C corporations.

Suppose at the beginning of 2016, Jamaal's basis in his S corporation stock was $27,000 and that Jamaal has loaned the S corporation $10,000. During 2016, the S corporation reported an $80,000 ordinary business loss and no separately stated items. How much of the ordinary loss is deductible by Jamaal if he owns 50% of the S corporation?

The specific identification method is a method an S corporation may use to allocate its income across short tax years that result from an involuntary S election termination.

An S corporation election may be voluntarily or involuntarily terminated.

S corporations have considerable flexibility in making special profit and loss allocations.

Assume Joe Harry sells his 25% interest in Joe's S Corp., Inc. to Tyrone on January 29. Using the specific identification 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)?

If an S corporation never operated as a C corporation, it may earn passive investment income without fear of an involuntary S election termination.

An S corporation shareholder's allocable share of ordinary business income (loss) is classified as self-employment income for tax purposes.

An S corporation can make a voluntary revocation of an S election if shareholders holding more than 25 percent of the S corporation stock (including nonvoting shares) agree.

Which of the following is not a true statement?

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?

SoTired, Inc., a C corporation with a June 30 year-end, elects S corporation status this year. Assuming no special elections, SoTired, Inc. will continue to use a June 30 year-end as an 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)?

Assume that at the end of 2016, Clampett, Inc. (an S corporation) distributes long-term capital gain property (fair market value of $40,000, basis of $25,000) 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 $15,000 in his Clampett, Inc. stock. How much income does J. D. recognize as a result of the distribution?

Which of the following is not a separately stated item for S corporations?