Excess net passive income of an S corporation is $80,000 and taxable income is $100,000.Assuming that there is $150,000 of accumulated earnings and profits from a C corporation year, calculate any passive income penalty tax.

Question

Quizplus · Accepted Answer

The passive income penalty tax for an S corporation occurs when it has excess net passive income and accumulated earnings and profits from prior C corporation years. The penalty tax is equal to the lesser of the two amounts: 1) 35% of the S corporation's excess net passive income or 2) the C corporation's accumulated earnings and profits. In this case, the penalty tax is the lesser of $80,000 (35% of excess net passive income) or $150,000 (accumulated earnings and profits from prior C corporation years), which is $80,000. Therefore, the passive income penalty tax is $28,000 (35% of $80,000). The answer is B.

Excess Net Passive Income of an S Corporation Is $80,000