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Exam 22: S Corporations

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Question 31

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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) . In 2017, Clampett, Inc. sells its entire inventory for $60,000 (Basis $30,000) . Assuming the corporate tax rate is 35% and that Clampett, Inc. had a $20,000 net operating loss carryover from its prior C corporation years. How much built-in gains tax does Clampett, Inc. pay in 2017?

A) $10,500.
B) $10,000.
C) $3,500.
D) $0.
E) None of these.

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

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Question 32

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Like partnerships, an S corporation shareholder's basis is dynamic and must be adjusted annually.

A) True
B) False

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Question 33

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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 Cook, Inc. after formation?

RGD Corporation was a C corporation from its inception in 2011 through 2015. However, it elected S corporation status effective January 1, 2016. RGD had $50,000 of earnings and profits at the end of 2015. RGD reported the following information for its 2016 tax year. What amount of excess net passive income tax is RGD liable for in 2016? (Round your answer for excess net passive income to the nearest thousand)

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 28 and a total of $1,460,000 from January 1 through December 31 (365 days) ?

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

Clampett, Inc. (an S corporation) previously operated as a C corporation. Under general rules, distributions from Clampett, Inc. are deemed to be paid in the following order:

At the beginning of the year, Harold, Missy, and Ranae formed HMR Corporation as an S corporation. For one-third of the HMR stock, Harold contributed $50,000 cash and land with a fair market value of $75,000 and adjusted tax basis of $60,000. The land was subject to a $45,000 mortgage, which was assumed by HMR on the formation. Missy and Ranae each contributed $80,000 cash to HMR for one-third of the HMR stock. What is Harold's basis in the HMR stock after the formation? What is Missy's basis in her HMR stock after the formation?

Separately stated items are tax items that are treated similarly for tax purposes as a shareholder's share of ordinary business income (loss).

XYZ Corporation (an S corporation) is owned by Jane and Rebecca who are each 50% shareholders. At the beginning of the year, Jane's basis in her XYZ stock was $40,000. XYZ reported the following tax information for 2016. Required: a. What amount of ordinary business income is allocated to Jane? b. What is the amount and character of separately stated items allocated to Jane? c. What is Jane's basis in her XYZ corp. stock at the end of the year?

J. D. formed Clampett, Inc. as a C corporation (calendar tax year) with J. D., Granny, and Jethro, Inc. (a C corporation) as shareholders. On January 15, 2016, Jethro, Inc. sold all its shares to Jane Hathaway. On February 28, 2016, Clampett, Inc. filed an S corporation election, with J. D., Granny, and Jane all consenting to the election. What is the earliest effective date of the S election?

Which of the following would not result in an S election termination?

If an S corporation shareholder sells her stock to a nonresident alien, it will automatically terminate the S election.

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. What is J.D.'s basis in his Clampett, Inc. stock after all transactions in 2017?

For S corporations without earnings and profits from prior C corporation years, the taxation of distributions to the shareholder is very similar to the rules for partnerships.

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

If Annie and Andy (each a 30% shareholder in an S corporation) file a revocation on March 18, 2016 to terminate their S corporation's S election, what is the effective date of the S corporation termination (assuming they do not specify one) ?

Which of the following is not an adjustment to an S corporation shareholder's stock basis?

SEC Corporation has been operating as a C corporation since 2013. It elected to become an S corporation, effective January 1, 2016. On December 31, 2015, SEC reported a net unrealized built in gain of $10,000. In addition to other transactions in 2016, SEC sold inventory it owned at the beginning of 2016 (it did not sell any other assets it owned at the beginning of 2016). 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 2016, its taxable income would have been $40,000. How much built-in gains tax must SEC pay in 2016?

Which of the following statements is correct?