Exam 22: S Corporations

Lamont is a 100% owner of JKL Corporation. JKL has been an S corporation since its inception in 2018. During 2019, JKL distributed $20,000 to Lamont. During 2019, JKL reported $5,000 of business income and no separately stated items. What is the amount and character of the gain on the distribution, if any, Lamont must recognize in each of the following alternative scenarios? Also, what is Lamont's stock basis at the end of 2019 in each of the following scenarios? a. Lamont's stock basis at the beginning of 2019 was $30,000. b. Lamont's stock basis at the beginning of 2019 was $4,000.

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

C corporations that elect S corporation status and use the FIFO inventory method are subject to the FIFO recapture tax.

If an S corporation shareholder sells her stock to a nonresident alien, it will automatically terminate the S election.

During 2018, CDE Corporation (an S corporation since its inception in 2016) liquidates this year by distributing a parcel of land to its sole shareholder Clark. The fair market value of the land at the time of the distribution was $100,000 and CDE's tax basis in the property was $130,000. Before considering the effects of the distribution, Clark's basis in his CDE stock was $40,000. What amount of loss, if any, does CDE recognize on the distribution? What amount of income, if any, does Clark recognize on the distribution and what is his basis in the land?

SEC Corporation has been operating as a C corporation since 2015. It elected to become an S corporation, effective January 1, 2018. On December 31, 2017, SEC reported a net unrealized built in gain of $10,000. In addition to other transactions in 2018, SEC sold inventory it owned at the beginning of 2018 (it did not sell any other assets it owned at the beginning of 2018). At the beginning of the year, the inventory it sold had a fair market value of $40,000 and a FIFO tax basis of $15,000. SEC sold the inventory for $28,000. If SEC had been a C corporation in 2018, its taxable income would have been $40,000. How much built-in gains tax must SEC pay in 2018? Assume the corporate tax rate is 21%.

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

When an S corporation distributes appreciated property to its shareholders the S corporation recognizes gain as though it had sold the appreciated property for its fair market value just prior to the distribution.

Clampett, Inc. has been an S corporation since its inception. On July 15, 2019, Clampett, Inc. distributed $50,000 to J. D. His basis in his Clampett, Inc. stock on January 1, 2019, was $45,000. For 2019, 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 2019?

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 29 and a total of $1,460,000 from January 1 through December 31 (365 days)?

Clampett, Inc. has been an S corporation since its inception. On July 15, 2019, Clampett, Inc. distributed $50,000 to J. D. His basis in his Clampett, Inc. stock on January 1, 2019, was $30,000. For 2019, 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 2019?

Suppose a calendar year C corporation, NewCorp., Inc., was formed on January 1, 2018 and all of the shareholders filed a form 2553 to elect S corporation status on April 14, 2018 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?

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. Assume that Clampett, Inc. never operated as a C corporation and that the corporate tax rate is 21%. What is Clampett, Inc.'s excess net passive income tax?

CB Corporation was formed as a calendar-year S corporation. Casey is a 60% shareholder and Bryant is a 40% shareholder. On September 30, 2018, Bryant sold his CB shares to Don. CB reported business income for 2018 as follows (assume that there are 365 days in the year): How much 2018 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?