Question 1

Shamrock Corporation has two classes of common stock outstanding.The Class A and Class B common stock give the shareholders identical rights and interests in the profits and assets of the corporation.Class A has one vote per share.Class B is nonvoting.Can Shamrock Corporation make an S corporation election?

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Question 2

Jeff owns 50% of an S corporation's stock with a basis in his stock of $50,000 on January 1.In addition,the S corporation owes Jeff $30,000 on January 1.The debt has a basis of $30,000 and is evidenced by a note.The S corporation reports an ordinary loss of $150,000 for the current year.The next year,it reports ordinary income of $20,000.On January 1 of the third year,the note is repaid.Due to the repayment of the note,Jeff must report what?

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Question 3

VJ Corporation is to be owned equally by Vic and Joe.The corporation will be formed by exchanging the assets and liabilities of the V & J Manufacturing Partnership for all the corporation's stock on September 1 of the current year.Both shareholders use the calendar year as their tax year and desire to make an S election.What tax issues should Vic and Joe consider with respect to the incorporation?

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Question 4

Zinc Corporation is created in the current year and promptly makes an S election.How much passive income can it earn this year without fear of losing its S corporation status or being subject to the Sec.1375 tax on excess net passive income?

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Question 5

Rocky Corporation,an S corporation,reports the following results for the current year:
  Rocky's AAA and accumulated E&P balances at the beginning of the year are $80,000 and $50,000,respectively.Rocky makes a $100,000 cash distribution to its sole shareholder on June 1 and a second $100,000 cash distribution on December 1.The shareholder's basis for Rocky stock on January 1 was $120,000.Discuss the tax consequences of these transactions.

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Question 6

Can loss or credit carryforwards from a previous C corporation tax year help reduce the built-in gains tax?

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Question 7

Caravan Corporation has always been an S corporation.Caravan Corporation is 100%owned by Alan Merten.On January 1,Alan has an adjusted basis of $50,000 in his Caravan stock.During the year,Caravan reports ordinary income of $60,000,a long-term capital gain of $10,000,and a charitable contribution of $5,000.Alan receives a $20,000 cash distribution from Caravan on December 1.What income does Alan recognize from the distribution,and what is his basis in the Caravan stock at year-end?

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Question 8

Garret and Hans own all the stock of GH Corporation.Garret sells all his GH stock to Olga on February 12.The next day,GH makes an S election.For the election to apply to the current year,who must consent to the election?

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Question 9

Martha,a U.S.citizen,owns 40% of the stock of George Corporation,an electing S corporation.At the time of her death this year,the George stock passes to her estate.The stock is subsequently transferred to a trust provided for in Martha's will.Can the testamentary trust hold the George stock for a two-year period before the S election is terminated?

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Question 10

What is a permitted year?

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Question 11

Robert Elk paid $100,000 for all of the single class of stock of Elkom Corporation,an electing S corporation,when incorporated in January,2007.Elkom's operating results and dividend distribution are as follows:
  What is Elk's basis for his Elkom stock on December 31 of 2007?

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Question 12

Zebra Corporation has always been an S corporation and is 100% owned by Paul.Paul has a basis of $40,000 in his Zebra stock at the beginning of the year.During the year,Zebra has an ordinary loss of $20,000 and a long-term capital gain of $10,000.In addition,Zebra Corporation distributed $55,000 in cash to Paul on December 1.Will the distribution cause Paul to recognize a gain? If so,what are its amount and character?

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Question 13

If losses are suspended due to the lack of basis in S corporation stock,do the losses expire when the S election terminates?

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Question 14

Swamp Corporation,a calendar-year taxpayer,has been an S corporation for several years.However,the corporation has become quite profitable,and management feels that it would be advantageous to make a public stock offering.What are Swamp Corporation's options concerning the date of revocation of the S election?

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The answer of Swamp Corporation,a calendar-year taxpayer,has been an S...

Question 15

King Corporation,an electing S corporation,is 100% owned by Crystal.On January 1 of the current year,her adjusted basis in the King stock is $30,000.During the year,King reports an ordinary loss of $30,000,tax-exempt municipal bond income of $15,000,dividend income from domestic corporations of $5,000,a long-term capital loss of $20,000,and a short-term capital loss of $30,000.What is Crystal's basis for the King stock at the end of the year?

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Question 16

List and discuss five advantages and five disadvantages of electing to be taxed as an S corporation over a C corporation or a partnership.

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Question 17

David owns 25% of an S corporation's stock (a capital asset)for the first three months of the S corporation's tax year.During the year,the S corporation has $16,000 of ordinary income and $32,000 of long-term capital gain.David starts the year with a basis of $50,000 in his S corporation stock and sells the stock for $56,000 on April 1 of the year.Assuming all months have 30 days,how much gain/loss does David report on the sale of the stock and what is its character?

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Question 18

Arnie is a 50% shareholder in Energy Corporation,an S corporation.The S corporation had an $80,000 ordinary loss last year and $10,000 of ordinary income this year.Before accounting for last year's losses,Arnie's basis in his Energy stock is $32,000 and Energy owed Arnie $4,000 (an unsecured note having a basis of $4,000)at the end of last year.In addition,Energy had $100,000 of other liabilities owed to creditors other than Arnie at the end of last year.What income and loss must Arnie report on his current return as a result of owning the Energy stock (ignoring the at-risk and passive activity limitations)?

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Question 19

Eagle Corporation has always been an S corporation.Eagle is 100% owned by Katy.Katy's adjusted basis in the Eagle stock is $100,000 on January 1 of the current year.During the current year,Eagle distributes XYZ stock (a capital asset)to Katy.The XYZ stock has a $50,000 FMV and a $40,000 adjusted basis on Eagle's books.The XYZ stock has been held as an investment for four years by Eagle.Eagle Corporation reports $40,000 of ordinary income in the current year.What is Katy's basis in the Eagle stock at the beginning of the next year?

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The answer of Eagle Corporation has always been an S...

Question 20

Bellows Corporation,a calendar-year taxpayer,has been an S corporation for ten years.Last year,John sold all the Bellows stock to Micky.Payments for the stock are to be made over a five-year period.In March of next year,Micky fails to make the necessary payments and John repossesses the stock.During the time Micky holds the stock,Bellows Corporation revokes its S election.Can Bellows Corporation reelect S status?

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Quiz 21: S Corporations