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Exam 22: S Corporations

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Question 21

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Which of the following is not considered a family member for purposes of the S corporation shareholder limit test?

A) Brother
B) Great-grandparent
C) Grandchild
D) Grandparent
E) None of the choices are correct.

F) B) and E)
G) None of the above

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Question 22

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RGD Corporation was a C corporation from its inception in 2015 through 2019. However, it elected S corporation status effective January 1, 2020. RGD had $50,000 of earnings and profits at the end of 2019. RGD reported the following information for its 2020 tax year. What amount of excess net passive income tax is RGD liable for in 2020? Assume the corporate tax rate is 21%.

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$6,300 (21% × $30,000). Passive investme...

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Question 23

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Clampett, Incorporated, has been an S corporation since its inception. On July 15, 2021, Clampett, Incorporated, distributed $50,000 to J.D. His basis in his Clampett, Incorporated, stock on January 1, 2021, was $45,000. For 2021, J.D. was allocated $10,000 of ordinary income from Clampett, Incorporated, and no separately stated items. How much capital gain does J.D. recognize related to Clampett, Incorporated, in 2021?

Which of the following statements is correct?

After terminating or voluntarily revoking S corporation status, a corporation may elect it again, but it generally must wait until the beginning of the third tax year after the tax year in which it terminated the election.

MWC is a C corporation that uses the accrual method of accounting. MWC made an S election, effective January 1 of 2020. The following assets were owned by MWC on December 31, 2019. What is MWC's net unrealized built-in gain when it converts to an S corporation on January 1, 2020?

At the beginning of the year, Clampett, Incorporated, had $100,000 in its AAA and $60,000 of earnings and profits from prior C corporation years. During the year, Clampett, Incorporated, earned $50,000 of ordinary income and paid $200,000 in distributions to its shareholders. Assume that J.D. owns 25percent of Clampett, Incorporated, his basis in Clampett, Incorporated, at the beginning of the year is $10,000, and his share of the distribution was $50,000. How much, if any, of the distribution is taxable as a capital gain?

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

During 2020, CDE Corporation (an S corporation since its inception in 2018)distributed a parcel of land to its sole shareholder, Clark. The fair market value of the land at the time of the distribution was $80,000 and CDE's tax basis in the property was $30,000. Before considering the effects of the distribution, Clark's basis in his CDE stock was $10,000. What amount of gain, if any, does CDE recognize on the distribution? What amount of income, if any, does Clark recognize on the distribution and what is Clark's basis in his CDE stock after accounting for the distribution?

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

Hazel is the sole shareholder of Maple Corporation In 2020 Maple operated as a C corporation and reported $16,600 of taxable income (and earnings and profits). On January 1, 2021, Maple elected S corporation status. During 2021 Maple reported $13,600 of ordinary business income and no separately stated items. It also distributed $26,600 to Hazel. What is the amount and character of income Hazel must recognize on the distribution? What is Hazel's stock basis at the end of 2021 (after accounting for the distribution)if her basis at the beginning of the year was $6,600?

ABC was formed as a calendar-year S corporation with Alan, Brenda, and Conner as equal shareholders. On May 1, 2020, ABC's S election was terminated after Conner sold his ABC shares (one-third of all shares)to his solely owned C corporation, Conner, Incorporated ABC reported business income for 2020 as follows: (Assume that there are 365 days in the year.) If ABC uses the daily method of allocating income between the S corporation short tax year (January 1-April 30)and the C corporation short tax year (May 1-December 31), how much income will it report on its S corporation short tax year return and its C corporation short tax year return for 2020?

S corporations may have no more than 50 shareholders, but members of the same family only count as one shareholder.

Clampett, Incorporated, has been an S corporation since its inception. On July 15, 2021, Clampett, Incorporated, distributed $61,000 to J.D. His basis in his Clampett, Incorporated, stock on January 1, 2021, was $50,000. For 2021, J.D. was allocated $10,000 of ordinary income from Clampett, Incorporated, and no separately stated items. What is J.D.'s basis in his Clampett, Incorporated, stock after all transactions in 2021?

C corporations that elect S corporation status and use the FIFO inventory method are subject to the FIFO recapture tax.

Assume that Clampett, Incorporated, has $200,000 of sales, $150,000 of cost of goods sold, $60,000 of interest income, and $40,000 of dividends. What is Clampett, Incorporated's excess net passive income?

At the beginning of the year, Clampett, Incorporated, had $100,000 in its AAA and $60,000 of earnings and profits from prior C corporation years. During the year, Clampett, Incorporated, earned $50,000 of ordinary income and paid $200,000 in distributions to its shareholders. Assume that J.D. owns 25percent of Clampett, Incorporated, his basis in Clampett, Incorporated, at the beginning of the year is $30,000, and his share of the distribution was $50,000. What is J.D.'s basis in the Clampett, Incorporated, stock after these transactions?

RGD Corporation was a C corporation from its inception in 2015 through 2019. However, it elected S corporation status effective January 1, 2020. RGD had $69,000 of earnings and profits at the end of 2019. RGD reported the following information for its 2020 tax year. What amount of excess net passive income tax is RGD liable for in 2020? Assume the corporate tax rate is 21%.

When an S corporation distributes appreciated property to all of its shareholders pro rata, the shareholders who receive the distributed property recognize income on their distributive share of the deemed gain.

During 2020, CDE Corporation (an S corporation since its inception in 2018)liquidates by distributing a parcel of land to its sole shareholder, Clark. The fair market value of the land at the time of the distribution was $100,000 and CDE's tax basis in the property was $30,000. Before considering the effects of the distribution, Clark's basis in his CDE stock was $40,000. What amount of gain (loss), if any, does CDE recognize on the distribution? What amount of income or loss, if any, does Clark recognize on the distribution and what is his basis in the land?