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Exam 11: S Corporations

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Question 61

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

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Question 62

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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.

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Question 63

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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.

Clampett,Inc.has been an S corporation since its inception.On July 15,2018,Clampett,Inc.distributed $50,000 to J.D.His basis in his Clampett,Inc.stock on January 1,2018,was $45,000.For 2018,J.D.was allocated $10,000 of ordinary income from Clampett,Inc.and no separately stated items.What is the amount of income J.D.recognizes related to Clampett,Inc.in 2018?

Suppose at the beginning of 2017,Jamaal's basis in his S corporation stock was $27,000 and that Jamaal has directly loaned the S corporation $10,000.During 2017,the S corporation reported an $80,000 ordinary business loss and no separately stated items.How much of the ordinary loss is deductible by Jamaal if he owns 50% of the S corporation?

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

An S corporation shareholder's allocable share of ordinary business income (loss)is classified as self-employment income for tax purposes.

CB Corporation was formed as a calendar-year S corporation.Casey is a 60% shareholder and Bryant is a 40% shareholder.On September 30,2017,Bryant sold his CB shares to Don.CB reported business income for 2017 as follows (assume that there are 365 days in the year): How much 2017 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?

Jason is one of 100 shareholders in Jace Corporation.The remaining 99 shareholders are unrelated individual U.S.residents.During the year,Jason gave several of his shares in Jace Corp.to his brother as a birthday present and to his best friend Hal (unrelated to all shareholders in Jace Corp.)as a wedding present.After these gifts,Jace Corp.has 102 shareholders.Is Jace Corp.prohibited from electing to become an S corporation? Explain.

Hazel is the sole shareholder of Maple Corp.In 2017 Maple operated as a C corporation and reported $15,000 of taxable income (and earnings and profits).In 2017,Maple elected S corporation status.During 2018 Maple reported $12,000 of ordinary business income and no separately stated items.It also distributed $25,000 to Hazel.What is the amount and character of income Hazel must recognize on the distribution? What is Hazel's stock basis at the end of 2018 (after accounting for the distribution)if her basis at the beginning of the year was $5,000?

Which of the following is not a true statement?

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

Suppose SPA Corp.was formed by Sara Inc.(a C corporation that is 100% owned by Sara)and Sara's friend Tyson.In exchange for 50% of the stock of SPA,Sara contributed $100,000.In exchange for the remaining 50% of the SPA stock,Tyson contributed a building with a fair market value of $100,000 and an adjusted tax basis of $60,000.How much gain is Tyson required to recognize on the contribution? Is SPA eligible to elect S corporation status?

Assume that at the end of 2017,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.How much income does J.D.recognize as a result of the distribution?

ABC was formed as a calendar-year S corporation with Alan,Brenda and Conner as equal shareholders.On May 1,2017,ABC's S election was terminated after Conner sold his ABC shares (one-third of all shares)to his solely owned C corporation Conner,Inc.ABC reported business income for 2017 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 2017?

Clampett,Inc.has been an S corporation since its inception.On July 15,2018,Clampett,Inc.distributed $50,000 to J.D.His basis in his Clampett,Inc.stock on January 1,2018,was $45,000.For 2018,J.D.was allocated $10,000 of ordinary income from Clampett,Inc.and no separately stated items.What is J.D.'s basis in his Clampett,Inc.stock after all transactions in 2018?

Assume Joe Harry sells his 25% interest in Joe's S Corp.,Inc.to Tyrone on January 29.Using the daily 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) ?

Suppose Clampett,Inc.terminated its S election on August 28,2017.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 2018,J.D.made additional capital contributions of $5,000 on March 15 and $12,000 on September 20.How much loss may J.D.deduct in 2018?

Tone Loc and 89 of his biggest fans formed an S corporation,2hit,Inc.,as the original ninety shareholders.Tone then transferred some of his stock to his grandfather,four of Tone's cousins,five of Tone's children,three of Tone's grandchildren,and 2 close friends.For the S corporation shareholder limit rules,how many shareholders does 2hit,Inc.have?

If an S corporation never operated as a C corporation,it may earn passive investment income without fear of an involuntary S election termination.