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Exam 11: S Corporations

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Question 1

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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.

A) True
B) False

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Question 2

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S corporations are not entitled to a dividends received deduction.

A) True
B) False

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Question 3

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During 2017,CDE Corporation (an S corporation since its inception in 2015)liquidates this year by distributing a parcel of land to its sole shareholder Clark.The fair market value of the land at the time of the distribution was $100,000 and CDE's tax basis in the property was $30,000.Before considering the effects of the distribution,Clark's basis in his CDE stock was $40,000.What amount of gain (loss),if any,does CDE recognize on the distribution? What amount of income or loss,if any,does Clark recognize on the distribution and what is his basis in the land?

The IRS may consent to an early re-election of S corporation status after a termination under which of the following:

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

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?

RGD Corporation was a C corporation from its inception in 2012 through 2016.However,it elected S corporation status effective January 1,2017.RGD had $50,000 of earnings and profits at the end of 2016.RGD reported the following information for its 2017 tax year. What amount of excess net passive income tax is RGD liable for in 2017? (Round your answer for excess net passive income to the nearest thousand).

For an S corporation shareholder to deduct it,a loss must clear three separate tax-provision hurdles: (1)tax basis,(2)at-risk amount,and (3)tax-shelter rules.

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

Which of the following is not considered a family member for purposes of the S corporation shareholder limit test?

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

At the beginning of the year,Clampett,Inc.had $100,000 in its AAA,$60,000 of earnings and profits from prior C corporation years.During the year,Clampett,Inc.earned $50,000 of ordinary income and paid $200,000 in distributions to its shareholders.Assume that J.D.owns 25% of Clampett,Inc.,his basis in Clampett,Inc.at the beginning of the year is $10,000,and his share of the distribution was $50,000.How much income does J.D.recognize this year from these transactions?

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 2017. 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 15,2017,Jethro,Inc.sold all its shares to Jane Hathaway.On February 28,2017,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 is not an adjustment to an S corporation shareholder's stock basis?

Suppose a calendar year C corporation,NewCorp.,Inc.,was formed on January 1,2017 and all of the shareholders filed a form 2553 to elect S corporation status on April 14,2017 with the consent of all of NewCorp.Inc.'s shareholders: Hassell,Richie Cunningham,and Arnold's,Inc.(a C corporation) .When is the S election effective?

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

Suppose at the beginning of 2017,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 a $5,000 suspended loss from the S corporation.In 2017,Jamaal contributed $8,000 to the S corporation,and the S corporation had ordinary income of $4,000.Assume that Jamaal owns 40% of the S corporation.How much net income or loss does Jamaal report this year from the S corporation?

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

Assume that at the end of 2017,Clampett,Inc.(an S corporation) distributes property (fair market value of $40,000,basis of $5,000) to each of its four equal shareholders (aggregate distribution of $160,000) .At the time of the distribution,Clampett,Inc.has no corporate E&P and J.D.has a basis of $50,000 in his Clampett,Inc.stock.What is J.D.'s stock basis after the distribution?