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Exam 22: S Corporations

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Question 71

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During 2019,CDE Corporation (an S corporation since its inception in 2017)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 72

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

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Question 73

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For S corporations with earnings and profits from prior C corporation years,the taxation of distributions to the shareholder is governed by rules very similar to the rules for partnerships.

S corporations without earnings and profits from prior C corporation years are not subject to the excess net passive income tax.

Distributions to owners may not cause the AAA to go negative or to become more negative.

Clampett,Inc.,converted to an S corporation on January 1,2019.At that time,Clampett,Inc.,had cash ($40,000) ,inventory (FMV $60,000,basis $30,000) ,accounts receivable (FMV $40,000,basis $40,000) ,and equipment (FMV $60,000,basis $80,000) .In 2020,Clampett,Inc.,sells its entire inventory for $60,000 (basis $30,000) .Assume the corporate tax rate is 21 percent and that Clampett,Inc.,had a $20,000 net operating loss carryover from its prior C corporation years.How much built-in gains tax does Clampett,Inc.,pay in 2020?

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 $30,000.For 2020,J.D.was allocated $10,000 of ordinary income from Clampett,Inc.,and no separately stated items.What is the amount of income J.D.recognizes related to Clampett,Inc.,in 2020?

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

Suppose that at the beginning of 2019 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 2019,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.How much net income or loss does Jamaal report this year from the S corporation?

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.What is the amount of income J.D.recognizes related to Clampett,Inc.,in 2020?

The IRS may consent to an early reelection of S corporation status after a termination under which of the following?

When an S corporation distributes appreciated property to all of its shareholders pro rata,the shareholders who receive the distributed property recognize income on their distributive share of the deemed gain.

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.What is J.D.'s basis in his Clampett,Inc.,stock after all transactions in 2020?

After terminating or voluntarily revoking S corporation status,a corporation may elect it again,but it generally must wait until the beginning of the third tax year after the tax year in which it terminated the election.