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Exam 22: S Corporations

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Question 51

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Suppose at the beginning of 2017, Jamaal's basis in his S corporation stock was $27,000 and that Jamaal has directly loaned the S corporation $10,000. During 2017, the S corporation reported an $80,000 ordinary business loss and no separately stated items. After any loss deductions this year, what is Jamaal's stock and debt basis at the end of the year if Jamaal is a 50% shareholder of the S corporation?

A) $67,000 stock basis; $10,000 debt basis.
B) -$13,000 stock basis; $10,000 debt basis.
C) $27,000 stock basis; 10,000 debt basis.
D) $0 stock basis; $10,000 debt basis.
E) None of the choices are correct.

F) A) and D)
G) B) and D)

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Question 52

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At the beginning of the year, Clampett, Inc. had $100,000 in its AAA, $60,000 of earnings and profits from prior C corporation years. During the year, Clampett, Inc.earned $50,000 of ordinary income and paid $200,000 in distributions to its shareholders. Assume that J. D. owns 25% of Clampett, Inc., his basis in Clampett, Inc. at thebeginning of the year is $10,000, and his share of the distribution was $50,000. How much income does J. D. recognize this year from these transactions?

A) $0.
B) $17,500.
C) $10,000.
D) $40,000.
E) None of the choices are correct.

F) A) and B)
G) All of the above

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Question 53

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Shea is a 100% owner of Mets Corporation (an S corporation). Mets is a calendar year taxpayer. OnFebruary 16, 2017, Mets filed an election to terminate its S election. Assuming Mets does not specify an effective date for the termination, what is the effective date of the termination?

S corporation allocated losses to a shareholder not deductible due to the tax basis limitation rules are carried over by the shareholder to future years for potential utilization.

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

SEC Corporation has been operating as a C corporation since 2014. It elected to become an Scorporation, effective January 1, 2017. On December 31, 2016, SEC reported a net unrealized built in gain of $10,000. In addition to other transactions in 2017, SEC sold inventory it owned at the beginning of 2017 (it did not sell any other assets it owned at the beginning of 2017). At the beginning of the year, the inventory it sold had a fair market value of $40,000 and a FIFO tax basis of $15,000. SEC sold the inventory for $28,000. If SEC had been a C corporation in 2017, itstaxable income would have been $40,000. How much built-in gains tax must SEC pay in 2017?

Differences in voting powers are permissible across shares of S corporation stock as longas the shares have identical distribution and liquidation rights.

S corporations are treated in part like C corporations and in part like partnerships with respect to tax deductions for qualifying employee fringe benefits.

Which of the following is not a separately stated item for S corporations?

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

Suppose Clampett, Inc. terminated its S election on August 28, 2017. At the end of the S corporation's short tax year ending on August 28, J. D.'s stock basis and at-risk amounts were both zero (he has never had debt basis) , and he had a suspended loss of $20,000. In2018, J. D. made additional capital contributions of $5,000 on March 15 and $12,000 onSeptember 20. How much loss may J. D. deduct in 2018?

and the C corporation short tax year (May 1 − December 31), how much income will it report on its Scorporation short tax year return and its C corporation short tax year return for 2017?

Clampett, Inc. has been an S corporation since its inception. On July 15, 2018, Clampett, Inc. distributed $50,000 to J. D. His basis in his Clampett, Inc. stock on January 1, 2018, was $45,000. For 2018, J. D. was allocated $10,000 of ordinary income from Clampett, Inc. and no separately stated items. What is J.D.'s basis in his Clampett, Inc. stock after all transactions in 2018?

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) ?

S corporations are not entitled to a dividends received deduction.

Parker is a 100% shareholder of Johnson Corp. (an S corporation). At the beginning of 2017, Parker's basis in his Johnson Corp. stock was $14,000. During 2017, Parker loaned $20,000 toJohnson Corp. and Johnson Corp. reported a $25,000 ordinary business loss and no separately stated items. In 2018, Johnson Corp. reported $8,000 of ordinary business income.a. How much of the $25,000 ordinary loss allocated to Parker clears the tax basis hurdle for deductibility in2017?b. What is Parker's stock and debt basis at the end of 2017?c. What is Parker's stock and debt basis at the end of 2018?

The estimated tax payment rules for S corporations generally follow the rules for Ccorporations.

Which of the following is not a true statement?

ABC was formed as a calendar-year S corporation with Alan, Brenda and Conner as equal shareholders. On May 1, 2017, ABC's S election was terminated after Conner sold his ABC shares (one-third of all shares) to his solely owned C corporation Conner, Inc. ABC reported businessincome for 2017 as follows (assume that there are 365 days in the year): If ABC uses the specific identification method to allocate income, how much will it allocate to the Scorporation short year and C corporation short year?

Suppose Clampett, Inc. terminated its S election on August 28, 2017. At the end of the S corporation's short tax year ending on August 28, J. D.'s stock basis and at-risk amounts were both zero (he has never had debt basis) , and he had a suspended loss of $20,000. In2018, J. D. made additional capital contributions of $5,000 on March 15 and $12,000 onSeptember 5. How much loss may J. D. deduct in 2018?