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Exam 22: S Corporations

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Question 21

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Suppose Clampett,Inc.,terminated its S election on August 28,2019.At the end of the S corporation's short tax year ending on August 28,J.D.'s stock basis and at-risk amounts were both zero (he has never had debt basis) ,and he had a suspended loss of $20,000.In 2020,J.D.made additional capital contributions of $5,000 on March 15 and $12,000 on September 5.How much loss may J.D.deduct in 2020?

A) $0.
B) $5,000.
C) $17,000.
D) $20,000.
E) None of the choices are correct.

F) C) and D)
G) A) and D)

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Question 22

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Suppose that at the beginning of 2019 Jamaal's basis in his S corporation stock was $27,000 and Jamaal has directly loaned the S corporation $10,000.During 2019,the S corporation reported an $80,000 ordinary business loss and no separately stated items.How much of the ordinary loss is deductible by Jamaal if he owns 50 percent of the S corporation?

A) $10,000.
B) $27,000.
C) $37,000.
D) $40,000.
E) None of the choices are correct.

F) D) and E)
G) C) and D)

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Question 23

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CB Corporation was formed as a calendar-year S corporation.Casey is a 60 percent shareholder and Bryant is a 40 percent shareholder.On September 30,2019,Bryant sold his CB shares to Don.CB reported business income for 2019 as follows: (Assume that there are 365 days in the year.) How much 2019 income is allocated to each shareholder if CB Corporation uses the daily method of allocating income?

Publicly traded corporations cannot be treated as S corporations.

Shea is a 100 percent owner of Mets Corporation (an S corporation).Mets is a calendar-year taxpayer.On February 16,2019,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?

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

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

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

Corporations taxed as S corporations offer the same legal protection to owners as corporations taxed as C corporations.

S corporation distributions of cash are not taxable to the shareholder to the extent of the combined stock and debt basis of the shareholder.

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

ABC Corp.elected to be taxed as an S corporation when it was initially formed.During its first three years of existence,it reported passive investment income in excess of 25 percent of its gross receipts.Is ABC's S election terminated under the excess passive investment income test? If so,what is the effective date of the termination? If not,why not?

Clampett,Inc.,has been an S corporation since its inception.On July 15,2020,Clampett,Inc.,distributed $50,000 to J.D.His basis in his Clampett,Inc.,stock on January 1,2020,was $45,000.For 2020,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 2020?

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.What is Clampett,Inc.'s excess net passive income?

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.

S corporations are not entitled to a dividends received deduction.

Maria,a resident of Mexico City,Mexico,formed MZE Corp.in Mexico under Mexican law but planned to do business in the United States.Is MZE eligible to elect S corporation status in the United States? Explain.

RGD Corporation was a C corporation from its inception in 2014 through 2018.However,it elected S corporation status effective January 1,2019.RGD had $50,000 of earnings and profits at the end of 2018.RGD reported the following information for its 2019 tax year. What amount of excess net passive income tax is RGD liable for in 2019? Assume the corporate tax rate is 21%.

Tone Loc and 89 of his biggest fans formed an S corporation,2hit,Inc.,as the original 90 shareholders.Tone then transferred some of his stock to his grandfather,four of Tone's cousins,five of Tone's children,three of Tone's grandchildren,and two close friends.According to the S corporation shareholder limit rules,how many shareholders does 2hit,Inc.,have?

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.