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Exam 16: S Corporations

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Question 61

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

A) True
B) False

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Question 62

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S corporation distributions of cash are not taxable to the shareholder to the extent of the combined shareholder's stock and debt basis.

A) True
B) False

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Question 63

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At the beginning of the year,Harold,Missy,and Ranae formed HMR Corporation as an S corporation.For one-third of the HMR stock,Harold contributed $50,000 cash and land with a fair market value of $75,000 and adjusted tax basis of $60,000.The land was subject to a $45,000 mortgage,which was assumed by HMR on the formation.Missy and Ranae each contributed $80,000 cash to HMR for one-third of the HMR stock.What is Harold's basis in the HMR stock after the formation? What is Missy's basis in her HMR stock after the formation?

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?

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.

C corporations that elect S corporation status and use the FIFO inventory method are subject to the FIFO recapture tax.

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?

Which of the following is not considered a family member for purposes of the S corporation shareholder limit test?

ABC was formed as a calendar-year S corporation with Alan,Brenda and Conner as equal shareholders.On May 1,2018,ABC's S election was terminated after Conner sold his ABC shares (one-third of all shares)to his solely owned C corporation Conner,Inc.ABC reported business income for 2018 as follows (assume that there are 365 days in the year): $\begin{array} { l l } \text { Period } & \text { Income } \\\text { Jaruary } 1 \text { through April } 30 ( 120 \text { days } ) & \$ 200,000 \\\text { May } 1 \text { through Decernber } 31 ( 245 \text { days) } & \underline {530,000} \\ \text { Jaruary } 1 \text { through Decernber } 31 &\underline { \$ 730,000}\end{array}$ If ABC uses the specific identification method to allocate income,how much will it allocate to the S corporation short year and C corporation short year?

ABC Corp.elected to be taxed as an S Corporation when it was initially formed.During its first three years of existence,it reported passive investment income in excess of 25 percent of its gross receipts.Is ABC's S election terminated under the excess passive investment income test? If so,what is the effective date of the termination? If not,why not?

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?

SoTired,Inc.,a C corporation with a June 30 year-end,elects S corporation status this year.Assuming no special elections,SoTired,Inc.will continue to use a June 30 year-end as an S corporation.

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

Similar to an S corporation shareholder's stock basis,the AAA may not have a negative balance.

Assume Joe Harry sells his 25% interest in Joe's S Corp.,Inc.to Tyrone on January 29.Using the specific identification allocation method,how much income does Joe Harry report if Joe's S Corp.,Inc.earned $200,000 from January 1 to January 29 and a total of $1,460,000 from January 1 through December 31 (365 days) ?

S corporations are not entitled to a dividends received deduction.

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

Assume that at the end of 2018,Clampett,Inc.(an S corporation) distributes property (fair market value of $40,000,basis of $5,000) 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 $50,000 in his Clampett,Inc.stock.How much income does J.D.recognize as a result of the distribution?

During 2018,MVC operated as a C corporation.However,it made an election to be taxed as an S corporation effective January 1,2019.MVC uses the accrual method of accounting and uses the LIFO method of accounting for its inventory.At the end of 2018 its inventory basis under the LIFO method was $80,000.If MVC had used the FIFO method of accounting for its inventory,it would have had a $100,000 basis in its inventory.Finally,MVC's regular taxable income in 2018 was $5,000.What amount of LIFO recapture tax must MVC pay? When must it pay the tax?

Which of the following statements is correct?