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Exam 22: S Corporations

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Question 1

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Any losses that are suspended under the at-risk rules are carried forward and are available during an S corporation's post­termination period.

A) True
B) False

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Question 2

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A per-day, per-share allocation of flow-through S corporation items must be used, unless the shareholder disposes of the entire interest in the entity.

A) True
B) False

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Question 3

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Persons who were S shareholders during any part of the year before the election date, but were not shareholders when the election was made, also must consent to an S election.

An S corporation shareholder's stock basis includes his or her direct investments plus a ratable share of any corporate liabilities.

Identify a disadvantage of being an S corporation.

Yates Corporation elects S status, effective for calendar year 2014. Yates' only asset has a basis of $50,200 and a fair market value of $110,400 as of January 1, 2014. The asset is sold at the end of 2014 for $130,800. What amount must Mark Farris, a 60% owner and subject to a 15% income tax rate, pay, if any?

Which item does not appear on Schedule K of Form 1120S?

Which item has no effect on an S corporation's AAA?

An S shareholder's stock basis does not include a ratable share of S corporation liabilities.

An estate may be a shareholder of an S corporation.

The Schedule M-3 is the same for a C corporation and an S corporation.

Grams, Inc., a calendar year S corporation is a manufacturer of widgets. Grams reports $20,000 DPGR and $15,000 of wages; its S corporation's QPAI is $5,000. Janet owns a 40% interest in the S corporation. All expenses that reduce DPGR are from wages, and all wages paid relate to DPGR. How much QPAI and wages are allocated to Janet?

What statement is correct with respect to an S corporation?

When loss assets are distributed by an S corporation, a shareholder's basis is equal to the asset's fair market value.

Where the S corporation rules are silent, C corporation provisions apply.

An S corporation cannot incur a tax liability at the corporation level.

Pepper, Inc., an S corporation in Norfolk, Virginia, has revenues of $400,000, taxable interest of $380,000, operating expenses of $250,000, and deductions attributable to the interest income of $140,000. Calculate any passive investment income penalty tax payable by this corporation.

Chris, the sole shareholder of Taylor, Inc., elects during 2014 to terminate the S election, effective January 1, 2015. As of the end of 2014, Taylor, Inc., holds AAA of $120,000 and OAA of $13,000. Chris receives a cash distribution of $130,000 on January 15, 2015. If his stock basis is $220,000 before the distribution, calculate Chris's taxable amount and his ending stock basis.

A distribution of cash or other property by an S corporation to shareholders that does not exceed the balance of AAA during a one-year period following an S election termination receives special capital gain treatment.

The LIFO recapture tax is a variation of the passive investment income penalty tax.