Question 1

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 2

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

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Question 3

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 4

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 5

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 6

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 7

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 8

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 9

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 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

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 12

What is a permitted year?

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Question 13

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 14

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 15

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 16

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 17

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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Question 18

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 19

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 20

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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Quiz 11: S Corporations

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?