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Exam 11: S Corporations

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Question 1

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Shea is a 100% owner of Mets Corporation (an S corporation). Mets is a calendar year taxpayer. On February 16, 2018, 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?

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January 1, 2018.
Mets filed th...

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Question 2

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Suppose at the beginning of 2018, 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 2018, 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. What is Jamaal's stock and debt basis at the end of 2018?

A) $0 stock basis; $4,600 debt basis.
B) $0 stock basis; $9,600 debt basis.
C) $4,600 stock basis; $0 debt basis.
D) $9,600 stock basis; $0 debt basis.
E) None of the choices are correct.

F) A) and B)
G) B) and C)

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Question 3

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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 $30,000. 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?

RGD Corporation was a C corporation from its inception in 2013 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. What amount of excess net passive income tax is RGD liable for in 2018? Assume the corporate tax rate is 21%. (Round your answer for excess net passive income to the nearest thousand).

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

Jackson is the sole owner of JJJ corp. (an S corporation). At the beginning of 2018, Jackson's basis in his JJJ stock was $8,000. For 2018, JJJ reported a ($30,000) ordinary business loss (not a passive loss) and $4,000 of long-term capital gains. Assuming Jackson's tax basis and his at risk amount are the same, what is Jackson's stock basis at the end of the year and how much of the ordinary business loss is he allowed to deduct in 2018?

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, 2018, Jethro, Inc. sold all its shares to Jane Hathaway. On February 28, 2018, 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? 

Bobby T (75% owner) would like to terminate the S corporation status for DJ, Inc. but Dallas (5% owner) does not want to terminate the S corporation status. Bobby T can terminate the S status for DJ, Inc. without Dallas' consent.

If Annie and Andy (each a 30% shareholder in a calendar year S corporation) file a revocation statement on March 20, 2018 to terminate their S corporation's S election, what is the effective date of the S corporation termination (assuming they do not specify one) ?

Publicly traded corporations cannot be treated as S corporations.

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

Maria resides in San Antonio, Texas. She formed MZE Corporation under the state laws of Texas. Maria anticipates that she will conduct her business activities in both Mexico and the United States. Is MZE eligible to elect S corporation status? Explain.

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

If Annie and Andy (each a 30% shareholder in a calendar year S corporation) file a revocation statement on February 10, 2018 to terminate their S corporation's S election, what is the effective date of the S corporation termination (assuming they do not specify one) ?

Suppose at the beginning of 2018, Jamaal's basis in his S corporation stock was $27,000 and that Jamaal has directly loaned the S corporation $10,000. During 2018, the S corporation reported an $80,000 ordinary business loss and no separately stated items. After any loss deductions this year, what is Jamaal's stock and debt basis at the end of the year if Jamaal is a 50% shareholder of the S corporation?

Suppose a calendar year C corporation, NewCorp., Inc., was formed on January 1, 2018 and all of the shareholders filed a form 2553 to elect S corporation status on April 14, 2018 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?

Which of the following would not result in an S election termination?

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.

CB Corporation was formed as a calendar-year S corporation. Casey is a 60% shareholder and Bryant is a 40% shareholder. On September 30, 2018, Bryant sold his CB shares to Don. CB reported business income for 2018 as follows (assume that there are 365 days in the year): How much 2018 income is allocated to each shareholder if CB uses its normal accounting rules to allocate income to the specific periods in which it was actually earned?

S corporations are required to file Form 1120S, U.S. Income Tax Return for an S Corporation, with the IRS by the fifteenth day of the fourth month after the S corporation's year end.