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Exam 16: S Corporations

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Question 71

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Parker is a 100% shareholder of Johnson Corp.(an S corporation).At the beginning of 2018,Parker's basis in his Johnson Corp.stock was $14,000.During 2018,Parker loaned $20,000 to Johnson Corp.and Johnson Corp.reported a $25,000 ordinary business loss and no separately stated items.In 2019,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 2018? b.What is Parker's stock and debt basis at the end of 2018? c.What is Parker's stock and debt basis at the end of 2019?

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Parts a and b:All $25,000 of the ordinar...

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Question 72

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

A) S corporations never pay estimated taxes.
B) S corporations with a federal income tax liability of $500 due to the built-in gains tax or excess net passive income tax must pay estimated taxes.
C) S corporations that owe $5,000 in LIFO recapture tax only must pay estimated taxes.
D) S corporations with a federal income tax liability of $100 due to the excess net passive income tax must pay estimated taxes.
E) None of the choices are correct.

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Question 73

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AIRE was initially formed as an S corporation three years ago.AIRE has four equal shareholders Adam,Irene,Raymond,and Ethan.Raymond and Ethan would like to terminate the S election.However,Adam and Irene are opposed to the idea.Can Raymond and Ethan make a voluntary election to terminate the S election without the consent of Adam and/or Irene? Explain.

Bobby T (95% owner)would like to elect S corporation status for DJ,Inc.but Dallas (5% owner)does not want to elect S corporation status.Bobby T cannot elect S status for DJ,Inc.without Dallas' consent.

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

On March 15,2018,J.D.sold his Clampett,Inc.(an S corporation) shares to Ellie Mae,Inc.(a C corporation) ,terminating Clampett,Inc.'s S election on March 15,2018.Absent permission from the IRS,what is the earliest date Clampett,Inc.may again elect to be taxed as an S corporation? 

S corporations are required to recognize both gains and losses on non-liquidating distributions of property to shareholders.

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 2018. $\begin{array} { l c c } \text { Description } & \text { Amount } \\\text { Sales reverue } & \$ 30,000 \\\text { Cost of goods sold } & ( 200,000 ) \\\text { Long-tenn capital gain } & 8,000 \\\text { Dividend income } & 5,000 \\\text { Tax exernpt interest } & 3,000 \\\text { Salary to owners } & ( 120,000 ) \\\text { Ermployee wages } & ( 50,000 ) \\\text { Depreciation expenses } & ( 12,000 ) \\\text { Miscellaraous expenses } & ( 10,000 ) \\\text { Overall net incorne } & \$ 354,000\end{array}$ 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?

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

Hazel is the sole shareholder of Maple Corp.In 2018 Maple operated as a C corporation and reported $15,000 of taxable income (and earnings and profits).In 2018,Maple elected S corporation status.During 2019 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 2019 (after accounting for the distribution)if her basis at the beginning of the year was $5,000?

The estimated tax payment rules for S corporations generally follow the rules for C corporations.

RGD Corporation was a C corporation from its inception in 2014 through 2017.However,it elected S corporation status effective January 1,2018.RGD had $50,000 of earnings and profits at the end of 2017.RGD reported the following information for its 2018 tax year. $\begin{array}{lr}\text { Description }&\text { Amount }\\\text { Consulting revenue } & \$ 130,000 \\\text { Salary to owners } & (50,000) \\\text { Employee wages } & (40,000) \\\text { Depreciation expense } & (8,000) \\\text { Interest income } & 50,000 \\\text { Dividend income } & \underline {40,000} \\\text { Overall net income }&\underline {\$ 122,000}\end{array}$   What amount of excess net passive income tax is RGD liable for in 2018? (Round your answer for excess net passive income to the nearest thousand).

Which of the following is a requirement to be an S corporation?

Clampett,Inc.has been an S corporation since its inception.On July 15,2019,Clampett,Inc.distributed $50,000 to J.D.His basis in his Clampett,Inc.stock on January 1,2019,was $45,000.For 2019,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 2019?