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Exam 11: S Corporations

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Question 21

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Shea, an individual, is a 100percent owner of Mets Corporation (an S corporation). Mets is a calendar-year taxpayer. On February 16, 2020, Mets filed an election to terminate its S election. Assuming Mets does not specify an effective date for the termination, what is the effective date of the termination?

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January 1, 2020.
Mets filed th...

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Question 22

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Like partnerships, S corporations generally determine their accounting periods and make accounting method elections at the entity level.

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B) False

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Question 23

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

RGD Corporation was a C corporation from its inception in 2015 through 2019. However, it elected S corporation status effective January 1, 2020. RGD had $64,000 of earnings and profits at the end of 2019. RGD reported the following information for its 2020 tax year. What amount of excess net passive income tax is RGD liable for in 2020? Assume the corporate tax rate is 21%.

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

S corporations without earnings and profits from prior C corporation years are not subject to the excess net passive income tax.

Clampett, Incorporated, converted to an S corporation on January 1, 2020. At that time, Clampett, Incorporated, had cash ($54,000) , inventory (FMV $74,000, basis $37,000) , accounts receivable (FMV $54,000, basis $54,000) , and equipment (FMV $74,000, basis $94,000) . In 2021, Clampett, Incorporated, sells its entire inventory for $74,000 (basis $37,000) . Assume the corporate tax rate is 21 percent. Clampett, Incorporated's taxable income in 2021 would have been $1,000,000 if it had been a C corporation. How much built-in gains tax does Clampett, Incorporated, pay in 2021?

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

The specific identification method and monthly allocation method are methods an S corporation may use to allocate its income across short tax years that result from an involuntary S election termination.

Lamont is a 100percent owner of JKL Corporation. JKL has been an S corporation since its inception in 2020. During 2021, JKL distributed $20,900 to Lamont. During 2021, JKL reported $5,900 of business income and no separately stated items. What is the amount and character of the gain on the distribution, if any, that Lamont must recognize in each of the following alternative scenarios? Also, what is Lamont's stock basis at the end of 2021 in each of the following scenarios? a. Lamont's stock basis at the beginning of 2021 was $30,450. b. Lamont's stock basis at the beginning of 2021 was $4,090.

For S corporations with earnings and profits from prior C corporation years, the taxation of distributions to the shareholder isgoverned by rules very similar to the rules for partnerships.

Suppose Clampett, Incorporated, terminated its S election on August 28, 2020. At the end of the S corporation's short tax year ending on August 28, J.D.'s stock basis and at-risk amounts were both zero (he has never had debt basis) , and he had a suspended loss of $20,000. In 2021, J.D. made additional capital contributions of $5,000 on March 15 and $12,000 on September 5. How much loss may J.D. deduct in 2021?

Clampett, Incorporated, has been an S corporation since its inception. On July 15, 2021, Clampett, Incorporated, distributed $50,000 to J.D. His basis in his Clampett, Incorporated, stock on January 1, 2021, was $45,000. For 2021, J.D. was allocated $10,000 of ordinary income from Clampett, Incorporated, and no separately stated items. What is the total amount of income J.D. recognizes related to Clampett, Incorporated, in 2021?

ABC was formed as a calendar-year S corporation with Alan, Brenda, and Conner as equal shareholders. On May 1, 2020, ABC's S election was terminated after Conner sold his ABC shares (one-third of all shares) to his solely owned C corporation, Conner, Incorporated ABC reported business income for 2020 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 2020?

Suppose that at the beginning of 2020 Jamaal's basis in his S corporation stock was $28,000 and Jamaal has directly loaned the S corporation $9,990. During 2020, the S corporation reported an $80,100 ordinary business loss and no separately stated items. How much of the ordinary loss is deductible by Jamaal if he owns 50percent of the S corporation?

Assume that at the end of 2020, Clampett, Incorporated (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, Incorporated, has no corporate earnings and profits and J.D. has a basis of $50,000 in his Clampett, Incorporated, stock. What is J.D.'s stock basis after the distribution?

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.

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

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

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