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Exam 22: S Corporations

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Question 71

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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?

A) $25,000.
B) $75,000.
C) $100,000.
D) $0.
E) None of the choices are correct.

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

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Question 72

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During 2017, CDE Corporation (an S corporation since its inception in 2015) liquidates this year by distributing a parcel of land to its sole shareholder Clark. The fair market value of the land at thetime of the distribution was $100,000 and CDE's tax basis in the property was $30,000. Beforeconsidering the effects of the distribution, Clark's basis in his CDE stock was $40,000. What amount of gain (loss), if any, does CDE recognize on the distribution? What amount of income or loss, if any, does Clark recognize on the distribution and what is his basis in the land?

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CDE recognizes $70,000 of gain on the di...

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Question 73

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An S corporation shareholder calculates his initial basis upon formation of the corporation like a C corporation shareholder.

Hector formed H Corporation as a C corporation at the beginning of 2017. Hector was the soleshareholder of H Corporation. H Corp. reported 2017 taxable income (and earnings and profits) of$200,000. At the beginning of 2018, H Corp. elected S corporation status. During 2018, H Corp. had a rough year, reporting an ordinary business loss of $70,000, $4,000 of dividend income, and$3,000 of interest income. H Corp. also distributed $15,000 to Hector. What is the amount andcharacter of gain/income Hector must recognize on the distribution (if any)? What is the balance inH Corporation's accumulated adjustments account (AAA) at the end of 2018?

For S corporations without earnings and profits from prior C corporation years, the taxation of cash distributions to the shareholder is very similar to the rules for partnerships.

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.

S corporations may have no more than 50 shareholders, but members of the same familyonly count as one shareholder.

Clampett, Inc. converted to an S corporation on January 1, 2017. 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 2018, Clampett, Inc. sells its entire inventory for $60,000 (Basis $30,000) . Assume thecorporate tax rate is 35% and that Clampett Inc.'s taxable income would have been a$50,000 loss in 2018 if it had been a C corporation. In 2019, Clampett, Inc.'s taxable income would have been $100,000 if it had been a C corporation. How much built-in gains tax does Clampett, Inc. pay in 2018? In 2019?

Assume that at the end of 2017, Clampett, Inc. (an S corporation) distributes long-term capital gain property (fair market value of $40,000, basis of $25,000) to each of its four equal shareholders (aggregate distribution of $160,000) . At the time of the distribution, Clampett, Inc. has no corporate E&P and J. D. has a basis of $15,000 in his Clampett, Inc. stock. How much income does J. D. recognize as a result of the distribution?

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. Assume that Clampett, Inc. never operated as a C corporation and that the corporate tax rate is 35%. What is Clampett,Inc.'s excess net passive income tax?

Clampett, Inc. converted to an S corporation on January 1, 2017. 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 2018, Clampett, Inc. sells its entire inventory for $60,000 (Basis $30,000) . Assuming thecorporate tax rate is 35% 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 2018?

Which of the following is not an adjustment to an S corporation shareholder's stock basis?

MWC is a C corporation that uses the accrual method of accounting. MWC made an S election, effectiveJanuary, 1 of 2017. The following assets were owned by MWC on December 31, 2016. What is MWC's net unrealized built-in gain when it converts to an S corporation on January 1, 2017?

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