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Exam 22: S Corporations

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Question 41

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Which of the following is the correct order in which loss limitation rules are applied?

A) passive loss rules 1st, basis rules 2nd, at-risk rules 3rd.
B) passive loss rules 1st, at-risk rules 2nd, basis rules 3rd.
C) basis rules 1st, passive loss rules 2nd, at-risk rules 3rd.
D) basis rules 1st, at-risk rules 2nd, passive loss rules 3rd.
E) None of the choices are correct.

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

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Question 42

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Which of the following statements is correct regarding S corporation estimated taxes?

A) S corporations with a federal income tax liability of $100 due to the excess net passive income tax must pay estimated taxes.
B) S corporations that owe $5,000 in LIFO recapture tax only must pay estimated taxes.
C) S corporations never pay estimated taxes.
D) S corporations with a federal income tax liability of $500 due to the built-in gains tax or excess net passive income tax must pay estimated taxes.
E) None of the choices are correct.

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

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Question 43

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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.

Publicly traded corporations cannot be treated as S corporations.

Which of the following income items from an S corporation is not considered investment income for purposes of the net investment income tax?

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) ?

Assume that at the end of 2017, 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. What is J. D.'s stock basis after the distribution?

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

Clampett, Inc. has been an S corporation since its inception. On July 15, 2018, Clampett, Inc. distributed $50,000 to J. D. His basis in his Clampett, Inc. stock on January 1, 2018, was $30,000. For 2018, J. D. was allocated $10,000 of ordinary income from Clampett, Inc. and no separately stated items. What is the amount of income J. D. recognizesrelated to Clampett, Inc. in 2018?

Clampett, Inc. has been an S corporation since its inception. On July 15, 2018, Clampett, Inc. distributed $50,000 to J. D. His basis in his Clampett, Inc. stock on January 1, 2018, was $45,000. For 2018, 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 2018?

An S corporation shareholder's allocable share of ordinary business income (loss) is classified as self-employment income for tax purposes.

Corporations taxed as S corporations offer the same legal protection to owners ascorporations taxed as C corporations.

When an S corporation distributes appreciated property to its shareholders the S corporation recognizes gain as though it had sold the appreciated property for its fair market value just prior to the distribution.

Like partnerships, S corporations generally determine their accounting periods and make accounting method elections at the entity level.

Assume that at the end of 2017, 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 the post-termination transition period, property distributions are tax-free toshareholders to the extent they do not exceed the S corporation's AAA balance and the individual shareholder's basis in the stock.

Tone Loc and 89 of his biggest fans formed an S corporation, 2hit, Inc., as the original ninety shareholders. Tone then transferred some of his stock to his grandfather, four of Tone's cousins, five of Tone's children, three of Tone's grandchildren, and 2 closefriends. For the S corporation shareholder limit rules, how many shareholders does 2hit, Inc. have?

The specific identification method and monthly allocation method are methods an S corporation may use to allocate its income across short tax years that result from an involuntary S election termination.

Built-in gains recognized fifteen years after a C corporation elects to become an Scorporation are subject to the built-in gains tax.

Suppose a calendar year C corporation, NewCorp., Inc., was formed on January 1, 2017 and all of the shareholders filed a form 2553 to elect S corporation status on April 14,2017 with the consent of all of NewCorp. Inc.'s shareholders: Hassell, RichieCunningham, and Arnold's, Inc. (a C corporation) . When is the S election effective?