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Exam 11: S Corporations

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Question 51

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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. How much total income does J.D. recognize as a result of the distribution?

A) $0
B) $5,000
C) $35,000
D) $40,000
E) None of the choices are correct.

F) A) and B)
G) A) and C)

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Question 52

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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?

A) $0
B) $21,000
C) $75,000
D) $100,000
E) None of the choices are correct.

F) C) and D)
G) A) and E)

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Question 53

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

Lamont is a 100percent owner of JKL Corporation. JKL has been an S corporation since its inception in 2020. During 2021, JKL distributed $20,000 to Lamont. During 2021, 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,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 $30,000. b. Lamont's stock basis at the beginning of 2021 was $4,000.

Bobby T (95percent owner) would like to elect S corporation status for DJ, Incorporated, but Dallas (5percent owner) does not want to elect S corporation status. Bobby T cannot elect S status for DJ, Incorporated, without Dallas's consent.

S corporation distributions of cash are not taxable to the shareholder to the extent of the combined stock and debt basis of the shareholder.

On March 15, 2020, J.D. sold his Clampett, Incorporated (an S corporation) shares to Ellie Mae, Incorporated (a C corporation) , terminating Clampett, Incorporated's S election on March 15, 2020. Absent permission from the IRS, what is the earliest date Clampett, Incorporated, may again elect to be taxed as an S corporation?

The S corporation rules are less complex for S corporations that have earnings and profits from prior C corporation years than for S corporations that do not have earnings and profits from prior C corporation years.

Clampett, Incorporated, converted to an S corporation on January 1, 2020. At that time, Clampett, Incorporated, 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 2021, Clampett, Incorporated, sells its entire inventory for $60,000 (basis $30,000) . Assume the corporate tax rate is 21 percent and that Clampett Incorporated's taxable income would have been a $50,000 loss in 2021 if it had been a C corporation. In 2022, Clampett, Incorporated's taxable income would have been $100,000 if it had been a C corporation. How much built-in gains tax does Clampett, Incorporated, pay in 2021? In 2022?

AIRE was initially formed as an S corporation three years ago. AIRE has four equal shareholders, Adam, Irene, Raymond, and Ethan. Raymond and Ethan would like to terminate the S election. However, Adam and Irene are opposed to the idea. Can Raymond and Ethan make a voluntary election to terminate the S election without the consent of Adam and/or Irene? Explain.

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

Clampett, Incorporated, converted to an S corporation on January 1, 2020. At that time, Clampett, Incorporated, 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) . What is Clampett, Incorporated's built-in gain or loss on January 1, 2020?

Suppose that at the beginning of 2020 Jamaal's basis in his S corporation stock is $1,700 and he has a $10,700 debt basis associated with a $10,700 loan he made to the S corporation. In 2020, Jamaal's share of S corporation income is $4,700, and he received a $7,700 distribution from the S corporation. What is Jamaal's stock and debt basis after these transactions?

Clampett, Incorporated, has been an S corporation since its inception. On July 15, 2021, Clampett, Incorporated, distributed $59,000 to J.D. His basis in his Clampett, Incorporated, stock on January 1, 2021, was $58,500. For 2021, J.D. was allocated $19,000 of ordinary income from Clampett, Incorporated, and no separately stated items. What is J.D.'s basis in his Clampett, Incorporated, stock after all transactions in 2021?

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, has $1,000 of earnings and profits from prior C corporation years and that the corporate tax rate is 21 percent. Clampett, Incorporated's taxable income would have been $122,000 this year if it had been a C corporation. What is Clampett, Incorporated's excess net passive income tax?

S corporations are not entitled to a dividends received deduction.

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 $20,750. In 2021, J.D. made additional capital contributions of $5,750 on March 15 and $14,250 on September 20. How much loss may J.D. deduct in 2021?

At the beginning of the year, Clampett, Incorporated, had $100,000 in its AAA and $60,000 of earnings and profits from prior C corporation years. During the year, Clampett, Incorporated, earned $50,000 of ordinary income and paid $200,000 in distributions to its shareholders. Assume that J.D. owns 25percent of Clampett, Incorporated, his basis in Clampett, Incorporated, at the beginning of the year is $30,000, and his share of the distribution was $50,000. What is J.D.'s basis in the Clampett, Incorporated, stock after these transactions?

J.D. formed Clampett, Incorporated, as a C corporation (calendar tax year) with J.D., Granny, and Jethro, Incorporated (a C corporation) as shareholders. On January 15, 2020, Jethro, Incorporated, sold all its shares to Jane Hathaway. On February 28, 2020, Clampett, Incorporated, filed an S corporation election, with J.D., Granny, and Jane all consenting to the election. What is the earliest effective date of the S election?

Assume that Clampett, Incorporated, has $310,000 of sales, $260,000 of cost of goods sold, $170,000 of interest income, and $150,000 of dividends. What is Clampett, Incorporated's excess net passive income?