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Exam 22: S Corporations

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Question 1

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At the beginning of the year,Clampett,Inc.,had $100,000 in its AAA and $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 percent of Clampett,Inc.,his basis in Clampett,Inc.,at the beginning of the year is $30,000,and his share of the distribution was $50,000.How much,if any,of the distribution is taxable as a dividend?

A) $0.
B) $10,000.
C) $12,500.
D) $15,000.
E) None of the choices are correct.

F) B) and D)
G) B) and E)

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Question 2

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In general,an S corporation shareholder makes increasing adjustments to her basis first,followed by adjustments that decrease basis.

A) True
B) False

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Question 3

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MWC is a C corporation that uses the accrual method of accounting.MWC made an S election,effective January 1 of 2019.The following assets were owned by MWC on December 31,2018. What is MWC's net unrealized built-in gain when it converts to an S corporation on January 1,2019?

Built-in gains recognized 15 years after a C corporation elects to become an S corporation are subject to the built-in gains tax.

Assume that at the end of 2019,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 earnings and profits and J.D.has a basis of $50,000 in his Clampett,Inc.,stock.What is J.D.'s stock basis after the distribution?

S corporation shareholders are not allowed to include any S corporation-level debt in their stock basis.

Suppose that at the beginning of 2019 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 he has a $5,000 suspended loss from the S corporation.In 2019,Jamaal contributed $8,000 to the S corporation,and the S corporation had ordinary income of $4,000.Assume that Jamaal owns 40 percent of the S corporation.What is Jamaal's stock and debt basis at the end of 2019?

Jackson is the sole owner of JJJ Corp.(an S corporation).At the beginning of 2019,Jackson's basis in his JJJ stock was $8,000.For 2019,JJJ reported a ($30,000)ordinary business loss (not a passive loss)and $4,000 of long-term capital gains.Assuming Jackson's tax basis and his at-risk amount are the same,what is Jackson's stock basis at the end of the year and how much of the ordinary business loss is he allowed to deduct in 2019?

Maria resides in San Antonio,Texas.She formed MZE Corporation under the state laws of Texas.Maria anticipates that she will conduct her business activities in both Mexico and the United States.Is MZE eligible to elect S corporation status? Explain.

An S election is terminated if the S corporation has passive investment income in excess of 20 percent of gross receipts for three consecutive years.

The same exact requirements for forming and contributing property govern S corporations and partnerships.

Which of the following statements is correct?

Which of the following statements is correct regarding S corporation estimated taxes?

An S corporation can use a noncalendar year-end if it can establish a business purpose for an alternative year-end.

Bobby T (75 percent owner)would like to terminate the S corporation status of DJ,Inc.,but Dallas (5 percent owner)does not want to terminate S corporation status.Bobby T can terminate the S corporation status for DJ,Inc.,without Dallas's consent.

Vanessa contributed $20,000 of cash and land with a fair market value of $100,000 and an adjusted basis of $40,000 to Cook,Inc.(an S corporation) when it was formed.The land was encumbered by a $30,000 mortgage executed two years before.What is Vanessa's tax basis in her Cook,Inc.,stock after formation?

Suppose Clampett,Inc.,terminated its S election on August 28,2019.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.In 2020,J.D.made additional capital contributions of $5,000 on March 15 and $12,000 on September 20.How much loss may J.D.deduct in 2020?

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

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

Parker is a 100 percent shareholder of Johnson Corp.(an S corporation).At the beginning of 2019,Parker's basis in his Johnson Corp.stock was $14,000.During 2019,Parker loaned $20,000 to Johnson Corp.and Johnson Corp.reported a $25,000 ordinary business loss and no separately stated items.In 2020,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 in 2019? b.What is Parker's stock and debt basis at the end of 2019? c.What is Parker's stock and debt basis at the end of 2020?