Question 1

Assume Joe Harry sells his 25percent interest in Joe's S Corporation, to Tyrone on January 29. Using the specific identification allocation method, how much income does Joe Harry report if Joe's S Corporation, earned $200,000 from January 1 to January 29 and a total of $1,460,000 from January 1 through December 31 (365 days)?

Accepted Answer

The answer of Assume Joe Harry sells his 25percent interest...

Question 2

Vanessa contributed $20,000 of cash and land with a fair market value of $100,000 and an adjusted basis of $40,000 to Cook, Incorporated (an S corporation) when it was formed. The land was encumbered by a $30,000 mortgage executed two years before. What is Vanessa's tax basis in her Cook, Incorporated, stock after formation?

Accepted Answer

The answer of Vanessa contributed $20,000 of cash and land...

Question 3

Suppose that at the beginning of 2020 Jamaal's basis in his S corporation stock was $27,000 and Jamaal has directly loaned the S corporation $10,000. During 2020, 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 percent of the S corporation?

Accepted Answer

Jamaal's total basis in the S corporation stock at the end of 2020 is $37,000 ($27,000 basis in his stock + $10,000 loan to the S corporation). Since the S corporation reported an $80,000 ordinary business loss during 2020, Jamaal's share of the loss is $40,000 (50% ownership x $80,000). However, Jamaal's allowable loss deduction is limited to the amount of his basis in the S corporation stock and any direct loans to the S corporation. Therefore, Jamaal can deduct up to $37,000 of the $40,000 loss ($27,000 basis in his stock + $10,000 loan direct to the corporation).

Question 4

Which of the following is not a true statement?

Accepted Answer

All of the statements are true.

Question 5

Which of the following is not a separately stated item for S corporations?

Accepted Answer

All of the choices listed (Dividends, Interest income, Charitable contributions, Investment interest expense) are separately stated items for S corporations. This is because they can affect the tax treatment of shareholders differently, depending on their individual tax situations.

Question 6

Supposethat at the beginning of 2020 Jamaal's basis in his S corporation stock is $0, he has a $0 debt basis associated with a $10,000 loan he made to the S corporation, andhe has a $5,000 suspended loss from the S corporation. In 2020, Jamaal contributed $8,000 to the S corporation, and the S corporation had ordinary income of $4,000. Assume that Jamaal owns 40percent of the S corporation. How much net income or loss does Jamaal report this year from the S corporation?

Accepted Answer

The answer of Supposethat at the beginning of 2020 Jamaal's...

Question 7

Suppose that at the beginning of 2020 Jamaal's basis in his S corporation stock was $28,000 and Jamaal has directly loaned the S corporation $9,990. During 2020, the S corporation reported an $80,100 ordinary business loss and no separately stated items. How much of the ordinary loss is deductible by Jamaal if he owns 50percent of the S corporation?

Accepted Answer

Jamaal's basis in his S corporation stock at the end of 2020 is equal to his beginning basis of $28,000 plus his share of the S corporation's losses ($80,100 x 50% = $40,050), plus the direct loan he made to the S corporation ($9,990).

Therefore, Jamaal's basis in his S corporation stock at the end of 2020 is $78,040 ($28,000 + $40,050 + $9,990).

Since Jamaal's basis is greater than the S corporation's losses, he can deduct the entire $40,050 share of the ordinary business loss on his personal tax return, subject to any other limitations.

So the correct answer is C) $37,990.

Question 8

Which of the following income items from an S corporation is not considered investment income for purposes of the net investment income tax?

Accepted Answer

The answer of Which of the following income items from...

Question 9

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 $20,000. In 2021, 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 2021?

Accepted Answer

When an S corporation terminates its election, any suspended losses are allowed as a deduction to the shareholder in the year of termination only to the extent of shareholder stock and debt basis on the last day of the S corporation's tax year. Since J.D.'s stock basis was zero as of August 28, 2020, he cannot deduct any of the $20,000 suspended loss on his 2021 tax return. However, J.D. made capital contributions of $5,000 on March 15 and $12,000 on September 20, 2021, which increase his stock basis by $17,000. Therefore, J.D. may deduct up to $17,000 of the suspended loss on his 2021 tax return.

Question 10

Assume Joe Harry sells his 25percent interest in Joe's S Corporation, to Tyrone on January 29. Using the specific identification allocation method, how much income does Joe Harry report if Joe's S Corporation, earned $225,000 from January 1 to January 29 and a total of $2,372,500 from January 1 through December 31 (365 days)?

Accepted Answer

The answer of Assume Joe Harry sells his 25percent interest...

Question 11

Assume Joe Harry sells his 25percent interest in Joe's S Corporation, to Tyrone on January 29. Using the daily allocation method, how much income does Joe Harry report if Joe's S Corporation, earned $200,000 from January 1 to January 29 and a total of $1,460,000 from January 1 through December 31 (365 days)?

Accepted Answer

The answer of Assume Joe Harry sells his 25percent interest...

Question 12

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 $20,000. In 2021, J.D. made additional capital contributions of $5,000 on March 15 and $12,000 on September 5. How much loss may J.D. deduct in 2021?

Accepted Answer

When an S corporation terminates its election, the tax year ends on the day of termination. All suspended losses for the S corporation's tax year ending on or before the termination date are lost. J.D.'s stock and at-risk basis amounts were both zero at the end of the short tax year, therefore he could not have deducted any of the suspended loss on his individual tax return for that year. The additional capital contributions made in 2021 increase J.D.'s stock basis but do not affect his ability to take a deduction for the suspended loss. J.D. may deduct the entire suspended loss of $20,000 in the year of termination (2020), regardless of the fact that he had no basis in the corporation at the end of the short tax year. Therefore, J.D. may deduct the full $20,000 suspended loss in 2021. However, he can only deduct up to the amount of his stock and debt basis in the corporation. His capital contributions of $5,000 and $12,000 in 2021 increase his stock basis to $17,000, therefore J.D. may deduct up to $17,000 of his suspended loss in 2021.

Question 13

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?

Accepted Answer

J.D. can deduct the loss up to the amount of his capital contributions made during the year. Since he contributed $5,750 on March 15, he can deduct this amount in 2021. The contribution on September 20 does not affect the 2021 deduction as it was made after the S corporation's short tax year ended.

Question 14

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

Accepted Answer

Distributions during the year decrease a shareholder's stock basis, not increase it. Therefore, choice D is not an adjustment to an S corporation shareholder's stock basis. The other choices are all adjustments: contributions during the year increase basis, as does the shareholder's share of ordinary business income; and the shareholder's share of nondeductible items decreases basis.

Question 15

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

Accepted Answer

The correct order in which loss limitation rules are applied is: basis rules first, at-risk rules second, and passive loss rules third. This sequence ensures that a taxpayer first has enough investment in the activity (basis), is actually at economic risk for the investment (at-risk), and finally, is materially participating in the activity or has other passive income to offset the loss (passive loss rules).

Question 16

Assume Joe Harry sells his 25percent interest in Joe's S Corporation, to Tyrone on January 29. Using the daily allocation method, how much income does Joe Harry report if Joe's S Corporation,earned $190,000 from January 1 to January 29 and a total of $547,500 from January 1 through December 31 (365 days)?

Accepted Answer

Joe's share of the income for the period he owned the interest is calculated by taking 25% of the income earned from January 1 to January 29, which is $190,000. Therefore, Joe reports 25% of $190,000, which is $47,500.

Question 17

Supposethat at the beginning of 2020 Jamaal's basis in his S corporation stock was $27,000 and Jamaal has directly loaned the S corporation $10,000. During 2020, the S corporation reported an $80,000 ordinary business loss and no separately stated items. After any loss deductions this year, what is Jamaal's stock and debt basis at the end of the year if Jamaal is a 50percent shareholder of the S corporation?

Accepted Answer

Jamaal's initial stock basis is $27,000. As a 50% shareholder, his share of the S corporation's $80,000 ordinary business loss is $40,000. Jamaal can deduct losses up to his stock basis, reducing it to $0 ($27,000 - $27,000). The remaining $13,000 loss ($40,000 - $27,000) reduces his loan basis from $10,000 to $0, but cannot go below zero, leaving him with a disallowed loss of $3,000 that he cannot currently deduct. Therefore, none of the provided choices accurately reflect Jamaal's end-of-year stock and debt basis.

Question 18

Suppose that at the beginning of 2020 Jamaal's basis in his S corporation stock is $0, he has a $0 debt basis associated with a $16,000 loan he made to the S corporation, and he has a $11,000 suspended loss from the S corporation. In 2020, Jamaal contributed $14,000 to the S corporation, and the S corporation had ordinary income of $10,000. Assume that Jamaal owns 40percent of the S corporation. How much net income or loss does Jamaal report this year from the S corporation?

Accepted Answer

The answer of Suppose that at the beginning of 2020...

Question 19

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

Accepted Answer

The IRS may consent to an early reelection of S corporation status after a termination if the termination was not reasonably within the control of the corporation or shareholders with a substantial interest in the corporation and was not part of a planned termination by the corporation or shareholders. This condition is met in option (C) and therefore, it is the correct choice.

Question 20

Supposethat at the beginning of 2020 Jamaal's basis in his S corporation stock is $0, he has a $0 debt basis associated with a $10,000 loan he made to the S corporation, and he has a $5,000 suspended loss from the S corporation. In 2020, Jamaal contributed $8,000 to the S corporation, and the S corporation had ordinary income of $4,000. Assume that Jamaal owns 40 percent of the S corporation. What is Jamaal's stock and debt basis at the end of 2020?

Accepted Answer

The answer of Supposethat at the beginning of 2020 Jamaal's...

Quiz 11: S Corporations

Which of the following is not a true statement?

Which of the following is not a separately stated item for S corporations?

Which of the following income items from an S corporation is not considered investment income for purposes of the net investment income tax?

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

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

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