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Exam 11: S: Corporations

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Question 21

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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.

A) True
B) False

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Question 22

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ABC was formed as a calendar-year S corporation with Alan, Brenda and Conner as equal shareholders. On May 1, 2016, 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 business income for 2016 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 S corporation short year and C corporation short year?

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Question 23

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Hazel is the sole shareholder of Maple Corp. In 2016 Maple operated as a C corporation and reported $15,000 of taxable income (and earnings and profits). In 2016, Maple elected S corporation status. During 2017 Maple reported $12,000 of ordinary business income and no separately stated items. It also distributed $25,000 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 2017 (after accounting for the distribution) if her basis at the beginning of the year was $5,000?

Lamont is a 100% owner of JKL Corporation. JKL has been an S corporation since its inception in 2016. During 2017, JKL distributed $20,000 to Lamont. During 2017, 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 2017 in each of the following scenarios? a. Lamont's stock basis at the beginning of 2017 was $30,000. b. Lamont's stock basis at the beginning of 2017 was $4,000.

S corporations generally recognize gain or loss on each asset they distribute in liquidation.

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. The two acceptable methods are the specific identification method and the daily method.

Clampett, Inc. converted to an S corporation on January 1, 2016. At that time, Clampett, Inc. had cash ($40,000) , inventory (FMV $60,000, Basis $30,000) , accounts receivable (FMV $40,000, Basis $40,000) , and equipment (FMV $60,000, Basis $80,000) . What is Clampett, Inc.'s built-in gain or loss on January 1, 2016?

Jackson is the sole owner of JJJ corp. (an S corporation). At the beginning of 2016, Jackson's basis in his JJJ stock was $8,000. For 2016, 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 2016?

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. never operated as a C corporation and that the corporate tax rate is 35%. What is Clampett, Inc.'s excess net passive income tax?

An S corporation election may be voluntarily or involuntarily terminated.

An S corporation shareholder calculates his initial basis upon formation of the corporation like a C corporation shareholder.

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. The corporation must wait until the beginning of the fifth year to elect S corporation status again.

S corporations are not entitled to a dividends received deduction.

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

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 amount is 25 percent of gross receipts for three consecutive years.

Which of the following is not a true statement?

Clampett, Inc. has been an S corporation since its inception. On July 15, 2017, Clampett, Inc. distributed $50,000 to J. D. His basis in his Clampett, Inc. stock on January 1, 2017, was $45,000. For 2017, 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 2017?

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 and profits from prior C corporation years than for S corporations that do not have earnings and profits from prior C corporation years.

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