Question 1

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 2

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 3

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 4

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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The answer of Garret and Hans own all the stock...

Question 5

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

Question 6

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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Question 7

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?

Accepted Answer

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

Question 8

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)?

Accepted Answer

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Question 9

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?

Accepted Answer

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

Question 10

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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Question 11

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 12

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

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Question 13

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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The answer of Jeff owns 50% of an S corporation's...

Question 14

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?

Accepted Answer

The answer of King Corporation,an electing S corporation,is 100% owned...

Question 15

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?

Accepted Answer

The answer of Martha,a U.S.citizen,owns 40% of the stock of...

Question 16

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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The answer of Robert Elk paid $100,000 for all of...

Question 17

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 18

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 19

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 20

What is a permitted year?

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Quiz 21: S Corporations