Exam 22: S Corporations

S corporations are not entitled to a dividends received deduction.

On March 15, 2016, J. D. sold his Clampett, Inc. (an S corporation) shares to Ellie Mae, Inc. (a C corporation), terminating Clampett, Inc.'s S election on March 15, 2016. Absent permission from the IRS, what is the earliest date Clampett, Inc. may again elect to be taxed as an S corporation?

Parker is a 100% shareholder of Johnson Corp. (an S corporation). At the beginning of 2016, Parker's basis in his Johnson Corp. stock was $14,000. During 2016, Parker loaned $20,000 to Johnson Corp. and Johnson Corp. reported a $25,000 ordinary business loss and no separately stated items. In 2017, Johnson Corp. reported $8,000 of ordinary business income. a. How much of the $25,000 ordinary loss allocated to Parker clears the tax basis hurdle for deductibility in 2016? b. What is Parker's stock and debt basis at the end of 2016? c. What is Parker's stock and debt basis at the end of 2017?

Maria, a resident of Mexico City, Mexico, formed MZE Corp. in Mexico under Mexican law but planned to do business in the United States. Is MZE eligible to elect S corporation status in the United States? Explain.

Distributions to owners may not cause the AAA to go negative or to become more negative.

ABC was formed as a calendar-year S corporation with Alan, Brenda and Conner as equal shareholders. On May 1, 2016, ABC's S election was terminated after Conner sold his ABC shares (one-third of all shares) to his solely owned C corporation Conner, Inc. ABC reported business income for 2016 as follows (assume that there are 365 days in the year): If ABC uses the daily method of allocating income between the S corporation short tax year (January 1 - April 30) and the C corporation short tax year (May 1 - December 31), how much income will it report on its S corporation short tax year return and its C corporation short tax year return for 2016?

CB Corporation was formed as a calendar-year S corporation. Casey is a 60% shareholder and Bryant is a 40% shareholder. On September 30, 2016, Bryant sold his CB shares to Don. CB reported business income for 2016 as follows (assume that there are 365 days in the year): How much 2016 income is allocated to each shareholder if CB uses its normal accounting rules to allocate income to the specific periods in which it was actually earned?

When an S corporation distributes appreciated property to its shareholders, the shareholders who receive the distributed property recognize income on their distributive share of the deemed gain.

Jackson is the sole owner of JJJ corp. (an S corporation). At the end of 2016, Jackson's basis in his JJJ stock and his at risk amount was $0. Jackson also had a $10,000 suspended ordinary business loss (suspended at the tax basis and at risk level). JJJ's S election was terminated effective the end of the day on December 31, 2016. If Jackson contributes $6,000 cash to JJJ on July 1, 2017 and $3,000 cash on January 5, 2018, how much of his $10,000 suspended loss will he be allowed to deduct and how much disappears unused?

Which of the following is the correct order in which loss limitation rules are applied?

CB Corporation was formed as a calendar-year S corporation. Casey is a 60% shareholder and Bryant is a 40% shareholder. On September 30, 2016, Bryant sold his CB shares to Don. CB reported business income for 2016 as follows (assume that there are 365 days in the year): How much 2016 income is allocated to each shareholder if CB corp. uses the daily method of allocating income?

Suppose Hassell formed a C corporation, NewCorp., Inc., in 2016 with a calendar tax year and filed a form 2553 to elect S corporation status on April 14, 2016 with the consent of all of NewCorp., Inc.'s, shareholders: Hassell, Richie Cunningham, and Arnold's, Inc. (a C corporation). When is the S election effective?

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

Differences in voting powers are permissible across shares of S corporation stock as long as the shares have identical distribution and liquidation rights.

Vanessa is the sole shareholder of V Corporation. V Corporation was formerly a C corporation but is currently an S corporation. At the end of 2016, before considering distributions, V Corporation's accumulated adjustments account (AAA) balance was $35,000 and its accumulated E&P from its years as a C corporation was $10,000. On July 1, V Corporation distributed $60,000 to Vanessa. What is the amount and character of income Vanessa must recognize on the distribution if her stock basis before considering the distribution was $60,000? What is Vanessa's stock basis after accounting for the distribution?

Tone Loc and 89 of his biggest fans formed an S corporation, 2hit, Inc., as the original ninety shareholders. Tone then transferred some of his stock to his grandfather, four of Tone's cousins, five of Tone's children, three of Tone's grandchildren, and 2 close friends. For the S corporation shareholder limit rules, how many shareholders does 2hit, Inc. have?

Clampett, Inc. converted to an S corporation on January 1, 2016. At that time, Clampett, Inc. had cash ($40,000), inventory (FMV $60,000, Basis $30,000), accounts receivable (FMV $40,000, Basis $40,000), and equipment (FMV $60,000, Basis $80,000). In 2017, Clampett, Inc. sells its entire inventory for $60,000 (Basis $30,000). Assuming the corporate tax rate is 35%. How much built-in gains tax does Clampett, Inc. pay in 2017?

Suppose SPA Corp. was formed by Sara Inc. (a C corporation that is 100% owned by Sara) and Sara's friend Tyson. In exchange for 50% of the stock of SPA, Sara contributed $100,000. In exchange for the remaining 50% of the SPA stock, Tyson contributed a building with a fair market value of $100,000 and an adjusted tax basis of $60,000. How much gain is Tyson required to recognize on the contribution? Is SPA eligible to elect S corporation status?

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.

S corporations generally recognize gain or loss on each asset they distribute in liquidation.