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Exam 11: S Corporations

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Question 61

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For S corporations without earnings and profits from prior C corporation years, the taxation of cash distributions to the shareholder isgoverned by rules very similar to the rules for partnerships.

A) True
B) False

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Question 62

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

A) True
B) False

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Question 63

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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 statements is correct regarding S corporation estimated taxes?

Suppose that at the beginning of 2020 Jamaal's basis in his S corporation stock is $1,000 and he has a $10,000 debt basis associated with a $10,000 loan he made to the S corporation. In 2020, Jamaal's share of S corporation income is $4,000, and he received a $7,000 distribution from the S corporation. How muchtotal income does Jamaal report in 2020 from these transactions?

Which of the following is not an adjustment to an S corporation shareholder's stock basis?

Bobby T (75percent owner) would like to terminate the S corporation status of DJ, Incorporated, but Dallas (5percent owner) does not want to terminate S corporation status. Bobby T can terminatethe Scorporation status for DJ, Incorporated, without Dallas's consent.

Jackson is the sole owner of JJJ Corporation (an S corporation). At the beginning of 2020, Jackson's basis in his JJJ stock was $8,000. For 2020, JJJ reported a ($30,000) ordinary business loss (not a passive loss) and $4,000 of long-term capital gains. Assuming Jackson's tax basis and his at-risk amount are the same, what is Jackson's stock basis at the end of the year and how much of the ordinary business loss is he allowed to deduct in 2020?

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 J.D.'s basis in his Clampett, Incorporated, stock after all transactions in 2021?

S corporation shareholders are not allowed to include any S corporation-level debt in their stock basis.

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

Jackson is the sole owner of JJJ Corporation (an S corporation). At the end of 2020, Jackson's basis in his JJJ stock and his at-risk amount were $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, 2020. If Jackson contributes $6,000 cash to JJJ on July 1, 2021, and $3,000 cash on January 5, 2022, how much of his $10,000 suspended loss will he be allowed to deduct and how much disappears unused?

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 specific identification method to allocate income, how much will it allocate to the S corporation short year and C corporation short year?

After terminating or voluntarily revoking S corporation status, a corporation may elect it again, but it generally must wait until the beginning of the third tax year after the tax year in which it terminated the election.

The IRS may consent to an early reelection of S corporation status after a termination under which of the following?

Publicly traded corporations cannot be treated as S corporations.

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. How much capital gain does J.D. recognize related to Clampett, Incorporated, in 2021?

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.

At the beginning of the year, Harold, Missy, and Ranae formed HMR Corporation as an S corporation. For one-third of the HMR stock, Harold contributed $50,000 cash and land with a fair market value of $75,000 and adjusted tax basis of $60,000. The land was subject to a $45,000 mortgage, which was assumed by HMR on the formation. Missy and Ranae each contributed $80,000 cash to HMR for one-third of the HMR stock. What is Harold's basis in the HMR stock after the formation? What is Missy's basis in her HMR stock after the formation?

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.