Jane wishes to contribute property and cash to an S corporation. The tax rules that apply are similar to those of a:
-C corporation
Reason:
S corporations are formed in a manner similar to a C corporation and enjoy the same tax free treatment under Section 351.
Which of the following may NOT be an S corporation shareholder?
#NAME?
TooEarly, Inc. is a calendar year corporation. On January 3rd of the current year at the request of TooEarly management, Grand Slam Inc., TooEarly's only corporate shareholder, sells all its shares of TooEarly stock to Bill Brady, an individual. On Januar
#NAME?
Samantha and Darren are 50% owners in Black Hat Corp., a calendar year S corporation. On June 29, Samantha sold her shares to Endora. The financial results of Black Hat using normal accounting rules are as follows: Income through June 30 = $64,000; income
Daily method = $25,342; Normal method = $18,000
Reason:
Endora owned shares for 185 days (Jun 29 - Dec 31). Daily method $100,000/365 x 185 days x 50% = $25,342. Normal accounting method $36,000 x 50% = $18,000.
Which of the following are separately stated items for an S corporation? (Check all that apply.)
-Interest income
-Charitable contributions
-Section 1231 gains
Reason:
Charitable contributions and interest income are both separately stated items.
For tax purposes, an S corporation is organized, reorganized and liquidated in a similar fashion to a:
-C corporation
David purchases Landon's shares in an S corporation for $100,000. Landon's basis was $80,000 at the time of the sale. What is David's basis in the S corporation shares?
$100,000
Reason:
When purchasing S corporation stock, the basis is merely the purchase price.
Robustness, Inc., a C corporation, wishes to organize a wholly-owned subsidiary that will operate as an insurance company. Can the subsidiary operate as a valid S corporation?
No
Reason:
The subsidiary may NOT be an S corporation because (1) it will have a corporate shareholder, and (2) it is an insurance company which is ineligible for S corporation status.
True or false: The calculation of adjusted basis for S corporation stock is more like the calculation of adjusted basis for C corporation stock than the calculation of adjusted basis for a partnership interest.
False
Reason:
The adjusted basis of an S corporation is calculated in a manner similar to that of a partnership.
Which of the following is MOST likely to prevent a valid S corporation election?
Issuing both common and preferred stock, but to the same shareholders
Reason:
Only a single class of stock is permitted.
S corporation shareholders are not allowed to deduct excess ______ losses.
business
Steven, Jennifer and Randy are all 1/3 shareholders in a calendar year-end S corporation that generated $90,000 of business income this year (not a leap year). Randy suffered some health issues earlier in the year and was required to sell his shares equal
$14,795
Reason:
Randy held 1/3 of the stock for 180 days of the year. $90,000/365 days x 180 days x 1/3 = $14,795.
Foggy Bottom Corp., an S corporation, recognized net long-term capital gains during the year. If the gains are simply lumped together with ordinary business income on Schedule K-1, then the shareholders are going to report the income as ordinary and, as a
Separately stated items
Lionel contributed $20,000 cash and land worth $100,000 (adjusted basis = $75,000) to an S corporation. The land was subject to a mortgage originated 5 years ago with a balance of $55,000 that was assumed by the S corporation. What is Lionel's basis in hi
$40,000
Reason:
$20,000 cash + $75,000 basis - $55,000 debt relief = $40,000.
Charlene's adjusted basis in S corporation stock was $10,000. Her share of S corporation losses was $22,000. On the last day of the year, she sells her entire interest in the S corporation. How much loss from the current year operations can Charlene deduc
$10,000
Reason:
$10,000 clears the basis limitation and can be deducted in the current year. The remaining loss is suspended, but due to the sale of the interest, the loss is NOT deductible.
Rank each item in the order in which it is considered for making adjustments to a shareholder's adjusted basis in S corporation stock.
#NAME?
The post-termination transition period (PTTP) for an S corporation ends:
the later of one year after the last day as an S corporation or the filing deadline (including extension) for the last S corporation return
What are the loss limitations that apply to S corporations? (Check all that apply.)
#NAME?
Rolando works for an S corporation for which he is the sole shareholder. Although he provides an extensive amount of services on behalf of the S corporation, he does not pay himself any salary, electing only to make distributions to himself at year end. H
As salary to the extent of reasonable compensation for Rolando's services
Reason:
Since S corporation distributions are generally tax-free, Rolando's attempt to disguise his salary as a distribution avoids employment taxes. The IRS is likely to characteri
Steven, Jennifer and Randy are all 1/3 shareholders in a calendar year-end S corporation that generated $90,000 of business income this year. Randy suffered some health issues recently, and so Steven and Jennifer decide they would like to allocate only 25
$30,000
Which of the following are non-taxable fringe benefits for >2% shareholders? (Check all that apply.)
-Education assistance programs
-De minimis fringes
-Dependent care assistance programs
Reason:
Non-taxable fringes for 2 percent shareholders includes employee achievement awards, educational and dependent care assistance programs, no-additional-cost serv
Glenda owns shares (50%) in an S corporation (always an S corporation) and also has a separate partnership investment (25% partner). In the current year, the S corporation recognizes $50,000 of ordinary income, but pays no distributions to Glenda. Glenda'
$25,750
Reason:
Both the S corporation and partnership income are taxable to Glenda when earned by the entities. Distributions from either entity are generally not taxable. Glenda will recognize $50,000 x 50% plus $3,000 x 25% = $25,750.
Charlie's adjusted basis in S corporation stock was $12,000. His share of S corporation losses was $22,000. How much of the loss clears the basis limitation and what is the treatment of the remaining loss (if any)?
$12,000 clears the basis limit; the remaining $10,000 is suspended
Reason:
$12,000 clears the basis limitation and can be deducted in the current year. The remaining loss is suspended and can be carried forward indefinitely.
If Karen's basis in her S Corporation stock is $30,000 and she receives a cash distribution of $40,000, she will report $______ of ordinary income and $_____ of capital gain income from the distribution.
$0 ordinary income / $10,000 capital gain
Juliana was a shareholder in a calendar year S corporation that terminated its S status on May 3. At the time of the termination, Juliana's stock and debt basis were zero, and she had suspended losses of $13,000. Juliana's suspended losses are:
not deductible unless additional basis is created during the PTTP
The accumulated adjustments account (AAA) is:
used to determine the taxation of S corporation distributions, where the history of the corporation includes a C corporation with E&P
Reason:
The AAA account is used to track post-S election earnings to ensure the taxation of any E&P earned previously.
Ordinary business income allocated to shareholders by an S corporation is typically treated as
ordinary income NOT subject to self-employment taxes.
Flash receives a distribution of long-term capital gain property worth $40,000 (basis to the S corp of $10,000) from the S corporation in which he is a 50% shareholder (never previously a C corporation). Flash's basis in the S corporation before the distr
$27,000
Reason:
Flash increases his basis by 50% of the gain recognized by the S corporation on the property distribution ($40,000 - $10,000 = $30,000 x 50% = $15,000). Flash then reduces his basis by the FMV of the property: $52,000 + $15,000 - $40,000 =
Match the treatment of typical non-taxable fringe benefits with the type of S corporation shareholder.
Instructions
0
Match the S corporation tax treatment with the type of liquidation.
Instructions
#NAME?
Which of the following is a separately stated item for a partnership, but is NOT a separately stated item for an S corporation?
Guaranteed payments
Reason:
S corporations do NOT have guaranteed payments.
The built-in gains tax recognition period is the first ______ years a former C corporation operates as an S corporation.
5 years
True or false: S Corporation distributions are never taxable to shareholders.
False
Reason:
Distributions are only nontaxable to the extent of the shareholder's basis in her stock.
The tax rate used to calculate the built-in gains tax is the:
highest current corporate tax rate
Reason:
The highest (and only) rate is currently 21%.
Davis Corp. operated as a C corporation until the start of this year when it elected S corporation status. At the time of the S election, Davis had $3,000 of E&P. During the year, Davis recognized $25,000 of ordinary business income, had $2,500 of dividen
$1,000
Reason:
AAA calculated as $25,000 + $2,500 - $1,500 = $26,000. The distribution reduces the AAA.
When an S corporation distributes appreciated property to a shareholder, the S corporation will:
recognize gain as if the property sold for fair market value just prior to the distribution
At the end of the tax year, DHG Corp, always an S corporation, made a liquidating distribution of long-term capital gain property to Sue, a 40% shareholder in DHG. The property has a fair market value of $50,000 and DHG's basis in the property is $30,000.
DHG gain of $20,000; Sue's gain is $42,000
Reason:
DHG recognizes a $20,000 gain ($50,000 - $30,000). Sue's share is $20,000 x 40% = $8,000 making her basis $16,000. Sue's gain is $50,000 - $16,000 = $34,000 + $8,000 flow through gain = $42,000.
The net gain that an S corporation would recognize if it sold each asset at its fair market value on the first day after converting from a C corporation to an S corporation is the
net unrealized built-in gain.
Houser Corp. had the following assets when it converted to an S corporation: Cash $3,500, Accounts receivable $6,000 (basis = $6,000), Inventory (FIFO basis) $40,000 (basis = $46,000), and Land $89,000 (basis = $72,000) What is Houser's net unrealized bui
$11,000
Reason:
Inventory has a $6,000 built-in loss and land has a $17,000 built-in gain which equals a net $11,000 unrealized built-in gain.
When an S corporation distributes property that has depreciated in value (fair market value less than basis) to a shareholder, the S corporation will:
treat the distribution as if at FMV, but no loss will be recognized