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Exam 16: S Corporations

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Question 41

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Lamont is a 100% owner of JKL Corporation.JKL has been an S corporation since its inception in 2018.During 2019,JKL distributed $20,000 to Lamont.During 2019,JKL reported $5,000 of business income and no separately stated items.What is the amount and character of the gain on the distribution,if any,Lamont must recognize in each of the following alternative scenarios? Also,what is Lamont's stock basis at the end of 2019 in each of the following scenarios? a.Lamont's stock basis at the beginning of 2019 was $30,000. b.Lamont's stock basis at the beginning of 2019 was $4,000.

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Part a:Lamont does not recognize any gai...

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Question 42

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For an S corporation shareholder to deduct it,a loss must clear three separate tax-provision hurdles: (1)tax basis,(2)at-risk amount,and (3)tax-shelter rules.

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Question 43

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The built-in gains tax does not apply to S corporations that never operated as C corporations.

The S corporation rules are less complex for S corporations that have earnings and profits from prior C corporation years than for S corporations that do not have earnings and profits from prior C corporation years.

An S corporation election may be voluntarily or involuntarily terminated.

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

Clampett,Inc.has been an S corporation since its inception.On July 15,2019,Clampett,Inc.distributed $50,000 to J.D.His basis in his Clampett,Inc.stock on January 1,2019,was $45,000.For 2019,J.D.was allocated $10,000 of ordinary income from Clampett,Inc.and no separately stated items.What is the amount of income J.D.recognizes related to Clampett,Inc.in 2019?

Jackson is the sole owner of JJJ corp.(an S corporation).At the end of 2018,Jackson's basis in his JJJ stock and his at risk amount was $0.Jackson also had a $10,000 suspended ordinary business loss (suspended at the tax basis and at risk level).JJJ's S election was terminated effective the end of the day on December 31,2018.If Jackson contributes $6,000 cash to JJJ on July 1,2019 and $3,000 cash on January 5,2020,how much of his $10,000 suspended loss will he be allowed to deduct and how much disappears unused?

Publicly traded corporations cannot be treated as S corporations.

S corporations without earnings and profits from prior C corporation years are not subject to the excess net passive income tax.

Suppose a calendar year C corporation,NewCorp.,Inc.,was formed on January 1,2018 and all of the shareholders filed a form 2553 to elect S corporation status on April 14,2018 with the consent of all of NewCorp.Inc.'s shareholders: Hassell,Richie Cunningham,and Arnold's,Inc.(a C corporation) .When is the S election effective?

The specific identification method and monthly allocation method are methods an S corporation may use to allocate its income across short tax years that result from an involuntary S election termination.

RGD Corporation was a C corporation from its inception in 2013 through 2017.However,it elected S corporation status effective January 1,2018.RGD had $50,000 of earnings and profits at the end of 2017.RGD reported the following information for its 2018 tax year. $\begin{array}{lrr} \text { Description } & \text { Amount } \\\text { Consulting revenue } & \$ 9,000 \\\text { Salary to owners } & (40,000) \\\text { Employee wages } & (30,000) \\\text { Depreciation expense } & (5,000) \\\text { Municipal bond interest } & 6,000 \\\text { Interest income } & 42,000 \\\text { Dividend income } & \underline {25,000 }\\\text { Overall net income } & \underline {\$ 97,000} \\\end{array}$ What amount of excess net passive income tax is RGD liable for in 2018? Assume the corporate tax rate is 21%.(Round your answer for excess net passive income to the nearest thousand).

Maria,a resident of Mexico City,Mexico,formed MZE Corp.in Mexico under Mexican law but planned to do business in the United States.Is MZE eligible to elect S corporation status in the United States? Explain.

Assume that at the end of 2018,Clampett,Inc.(an S corporation) distributes property (fair market value of $40,000,basis of $5,000) to each of its four equal shareholders (aggregate distribution of $160,000) .At the time of the distribution,Clampett,Inc.has no corporate E&P and J.D.has a basis of $50,000 in his Clampett,Inc.stock.What is J.D.'s stock basis after the distribution?

Which of the following S corporations would be subject to the excess net passive income tax?

Clampett,Inc.has been an S corporation since its inception.On July 15,2019,Clampett,Inc.distributed $50,000 to J.D.His basis in his Clampett,Inc.stock on January 1,2019,was $45,000.For 2019,J.D.was allocated $10,000 of ordinary income from Clampett,Inc.and no separately stated items.How much capital gain does J.D.recognize related to Clampett,Inc.in 2019? 

The specific identification method is a method an S corporation may use to allocate its income across short tax years that result from an involuntary S election termination.

Assume that Clampett,Inc.has $200,000 of sales,$150,000 of cost of goods sold,$60,000 of interest income,and $40,000 of dividends.Assume that Clampett,Inc.has $1,000 of earnings and profits from prior C corporation years and that the corporate tax rate is 21%.Clampett,Inc.'s taxable income would have been $122,000 this year if it had been a C corporation.What is Clampett,Inc.'s excess net passive income tax? 

Suppose at the beginning of 2018,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 a $5,000 suspended loss from the S corporation.In 2018,Jamaal contributed $8,000 to the S corporation,and the S corporation had ordinary income of $4,000.Assume that Jamaal owns 40% of the S corporation.How much net income or loss does Jamaal report this year from the S corporation?