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Exam 22: S Corporations

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Question 71

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Clampett, Inc. has been an S corporation since its inception. On July 15, 2017, Clampett, Inc. distributed $50,000 to J. D. His basis in his Clampett, Inc. stock on January 1, 2017, was $30,000. For 2017, 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 2017?

A) $60,000.
B) $50,000.
C) $20,000.
D) $10,000.
E) None of these.

F) A) and B)
G) D) and E)

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Question 72

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Bobby T (95% owner) would like to elect S corporation status for DJ, Inc. Dallas (5% owner) does not want to elect S corporation status. Bobby T cannot elect S status for DJ, Inc. without Dallas' consent.

A) True
B) False

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Question 73

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Publicly traded corporations cannot be treated as S corporations.

Suppose at the beginning of 2016, 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 2016, 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?

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.

Suppose at the beginning of 2016, 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 2016, 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 2016?

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

To make an S election effective as of the beginning of the current year, an S corporation must file IRS Form 2553 within 3½ months after the beginning of the year.

During 2016, MVC operated as a C corporation. However, it made an election to be taxed as an S corporation effective January 1, 2017. MVC uses the accrual method of accounting and uses the LIFO method of accounting for its inventory. At the end of 2016 its inventory basis under the LIFO method was $80,000. If MVC had used the FIFO method of accounting for its inventory, it would had a $100,000 basis in its inventory. Finally, MVC's regular taxable income in 2016 was $5,000. What amount of LIFO recapture tax must MVC pay? When must it pay the tax?

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?

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?

Lamont is a 100% owner of JKL Corporation. JKL has been an S corporation since its inception in 2016. During 2017, JKL distributed $20,000 to Lamont. During 2017, JKL reported $5,000 of business income and no separately stated items. What is the amount and character of the gain on the distribution, if any, Lamont must recognize in each of the following alternative scenarios? Also, what is Lamont's stock basis at the end of 2017 in each of the following scenarios? a. Lamont's stock basis at the beginning of 2017 was $30,000. b. Lamont's stock basis at the beginning of 2017 was $4,000.

The same exact requirements for forming and contributing property govern S corporations and partnerships.

Suppose at the beginning of 2016, 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 2016, Jamaal's share of S corporation income is $4,000, and he received a $7,000 distribution from the S corporation. How much income does Jamaal report in 2016 from these transactions?