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Exam 11: S Corporations

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Question 41

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Clampett, Incorporated, has been an S corporation since its inception. On July 15, 2021, Clampett, Incorporated, distributed $56,000 to J.D. His basis in his Clampett, Incorporated, stock on January 1, 2021, was $31,200. For 2021, J.D. was allocated $10,600 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) $66,600
B) $56,000
C) $20,600
D) $14,200
E) None of the choices are correct.

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Question 42

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During 2020, CDE Corporation (an S corporation since its inception in 2018) distributed a parcel of land to its sole shareholder, Clark. The fair market value of the land at the time of the distribution was $80,000 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 $10,000. What amount of gain, if any, does CDE recognize on the distribution? What amount of income, if any, does Clark recognize on the distribution and what is Clark's basis in his CDE stock after accounting for the distribution?

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CDE recognizes $50,000 of gain on the di...

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Question 43

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The built-in gains tax does not apply to S corporations that never operated as C corporations.

If Annie and Andy (each a 30percent shareholder in a calendar-year S corporation) file a revocation statement on February 10, 2020, 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 a requirement to be an S corporation?

Suppose Clampett, Incorporated, terminated its S election on August 28, 2020. 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 2021, J.D. made additional capital contributions of $5,000 on March 15 and $12,000 on September 20. How much loss may J.D. deduct in 2021?

S corporations generally recognize gain or loss on each appreciated and depreciated asset they distribute in liquidation.

S corporations have considerable flexibility in making special profit and loss allocations of operating income.

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.

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, andhe 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 40percent of the S corporation. How much net income or loss does Jamaal report this year from the S corporation?

During 2020, MVC operated as a C corporation. However, it made an election to be taxed as an S corporation effective January 1, 2021. MVC uses the accrual method of accounting and uses the LIFO method of accounting for its inventory. At the end of 2020 its inventory basis under the LIFO method was $63,000. If MVC had used the FIFO method of accounting for its inventory, it would have had a $70,000 basis in its inventory. Finally, MVC's regular taxable income in 2020 was $80,000. What amount of LIFO recapture tax must MVC pay? When must it pay the tax?

Supposethat at the beginning of 2020 Jamaal's basis in his S corporation stock is $1,000 and he has a $10,000 debt basis associated with a $10,000 loan he made to the S corporation. In 2020, Jamaal's share of S corporation income is $4,000, and he received a $7,000 distribution from the S corporation. What is Jamaal's stock and debt basis after these transactions?

Assume that Clampett, Incorporated, 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, Incorporated's excess net passive income?

Assume Joe Harry sells his 25percent interest in Joe's S Corporation, to Tyrone on January 29. Using the daily allocation method, how much income does Joe Harry report if Joe's S Corporation,earned $190,000 from January 1 to January 29 and a total of $547,500 from January 1 through December 31 (365 days) ?

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

Which of the following income items from an S corporation is not considered investment income for purposes of the net investment income tax?

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

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.

If Annie and Andy (each a 30percent shareholder in a calendar-year S corporation) file a revocation statement on March 20, 2020, to terminate their S corporation's S election, what is the effective date of the S corporation termination (assuming they do not specify one) ?

Differences in voting powers are permissible across shares of S corporation stock as long as the shares have identical distribution and liquidation rights.