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Exam 17: S: Corporations

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Question 21

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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. $\begin{array} { | l | r | } \hline \text { Description } & \text { Amount } \\\hline \text { Sales revenue } & \$ 730,000 \\\hline \text { Cost of goods sold } & ( 200,000 ) \\\hline \text { Long-term capital gain } & 8,000 \\\hline \text { Dwidend income } & 5,000 \\\hline \text { Tax exempt interest } & 3,000 \\\hline \text { Salary to owners } & ( 120,000 ) \\\hline \text { Employee wages } & ( 50,000 ) \\\hline \text { Description expenses } & ( 12,000 ) \\\hline \text { Miscellaneous expenses } & ( 10,000 ) \\\hline \text { Overall net income } & \$ 354,000 \\\hline\end{array}$ 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?

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Parts a and b: See the followi...

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Question 22

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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.

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Question 23

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Which of the following is a requirement to be an S corporation?

The same exact requirements for forming and contributing property govern S corporations and partnerships.

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

Which of the following S corporations would be subject to the excess net passive income tax?

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.

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

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

RGD Corporation was a C corporation from its inception in 2011 through 2015. However, it elected S corporation status effective January 1, 2016. RGD had $50,000 of earnings and profits at the end of 2015. RGD reported the following information for its 2016 tax year. $\begin{array} { | l | r | } \hline \text { Description } & \text { Amount } \\\hline \text { Consulting revenue } & \$ 130,000 \\\hline \text { Salary to owners } & ( 50,000 ) \\\hline \text { Employee wages } & ( 40,000 ) \\\hline \text { Depreciation expense } & ( 8,000 ) \\\hline \text { Interest income } & 50,000 \\\hline \text { Dividend income } & 40,000 \\\hline \text { Overall net income } & \$ 122,000 \\\hline\end{array}$ What amount of excess net passive income tax is RGD liable for in 2016? (Round your answer for excess net passive income to the nearest thousand)

Similar to an S corporation shareholder's stock basis, the AAA may not have a negative balance.

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. What is J. D.'s stock basis after the distribution?

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

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.

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 35%. What is Clampett, Inc.'s excess net passive income tax?

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 March 18, 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) ?

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

During 2016, CDE Corporation (an S corporation since its inception in 2014) 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?