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Exam 22: S Corporations

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Question 61

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Clampett, Incorporated, has been an S corporation since its inception. On July 15, 2021, Clampett, Incorporated, distributed $54,500 to J.D. His basis in his Clampett, Incorporated, stock on January 1, 2021, was $30,900. For 2021, J.D. was allocated $10,450 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?

A) $64,950
B) $54,500
C) $20,450
D) $13,150
E) None of the choices are correct.

F) A) and C)
G) A) and B)

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Question 62

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When an S corporation distributes appreciated property to its shareholders, the S corporation recognizes gain as though it had sold the appreciated property for its fair market value just prior to the distribution.

A) True
B) False

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Question 63

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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. What is J.D.'s basis in his Clampett, Incorporated, stock after all transactions in 2021?

S corporations are required to file Form 1120S, U.S. Income Tax Return for an S Corporation, with the IRS by the 15th day of the fourth month after the S corporation's year-end.

Clampett, Incorporated, has been an S corporation since its inception. On July 15, 2021, Clampett, Incorporated, distributed $68,000 to J.D. His basis in his Clampett, Incorporated, stock on January 1, 2021, was $72,000. For 2021, J.D. was allocated $12,000 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?

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?

RGD Corporation was a C corporation from its inception in 2016 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? (Round your answer for excess net passive income to the nearest thousand.)

Similar to an S corporation shareholder's stock basis, the AAA may not have a negative balance.

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

An S corporation election may be voluntarily or involuntarily terminated.

To make an S election effective as of the beginning of the current year, an S corporation must file IRS Form 2553 within three and a half months after the beginning of the year.

J.D. formed Clampett, Incorporated, as a C corporation (calendar tax year) with J.D., Granny, and Jethro, Incorporated (a C corporation) as shareholders. On January 15, 2020, Jethro, Incorporated, sold all its shares to Jane Hathaway. On February 28, 2020, Clampett, Incorporated, 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?

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

On March 15, 2020, J.D. sold his Clampett, Incorporated (an S corporation) shares to Ellie Mae, Incorporated (a C corporation) , terminating Clampett, Incorporated's S election on March 15, 2020. Absent permission from the IRS, what is the earliest date Clampett, Incorporated, may again elect to be taxed as an S corporation?

During the post-termination transition period, property distributions are tax-free to shareholders to the extent they do not exceed the S corporation's AAA balance and the individual shareholder's basis in the stock.

Shea, an individual, is a 100percent owner of Mets Corporation (an S corporation). Mets is a calendar-year taxpayer. On February 16, 2020, 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 corporations have considerable flexibility in making special profit and loss allocations of operating income.

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

SoTired, Incorporated, a C corporation with a June 30 year-end, elects S corporation status this year. Assuming no special elections, SoTired, Incorporated, will continue to use a June 30 year-end as an S corporation.

Supposethat at the beginning of 2020 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 2020, 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 2020?