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

Question

Quizplus · Accepted Answer

Excess net passive income tax is calculated for S corporations with accumulated earnings and profits from C corporation years when passive income exceeds 25% of gross receipts. Clampett, Inc.'s gross receipts are $300,000 ($200,000 sales + $60,000 interest income + $40,000 dividends). Passive income is $100,000 ($60,000 interest + $40,000 dividends). Since passive income ($100,000) is more than 25% of gross receipts ($300,000), the corporation is subject to excess net passive income tax. The taxable income as if it were a C corporation is $122,000. The excess net passive income is calculated as follows: $100,000 passive income - 25% of $300,000 gross receipts = $25,000. The tax is 21% of $25,000, which equals $5,250.

Assume That Clampett, Inc