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Exam 22: S Corporations

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Question 71

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Liabilities affect the owner's basis differently in an S corporation than they do in a partnership.

A) True
B) False

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Question 72

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Your client is a C corporation that would like to convert to S status. Advise this corporation with respect to minimizing any built-in gains tax.

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The C corporation should obtain sound ap...

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Question 73

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Distributions of appreciated property by an S corporation are not taxable to the entity.

Towne, Inc., a calendar year S corporation, holds AAA of $627,050 at the beginning of 2014. During the year, the following items occur. $\begin{array}{lr}\text { Sales income } & \$ 216,000 \\\text { Loss from real estate operations } & (4,000) \\\text { Officers' life insurance proceeds } & 100,000\\\text { Premiums paid for officers' life insurance } & (3,600) \\\text { Dividend income } & 17,000 \\\text { Interest income } & 3,000\\\text {Charitable contributions}&(22,000 )\\\text {§ 179 depreciation expense}&(2,500)\\\text {Administrative expenses}&(35,000)\\\text {Cash distributions to shareholders}&73,220 \\\text {Calculate Towne's ending AAA balance.}\end{array}$

Most IRAs cannot own stock in an S corporation.

An S corporation cannot be a shareholder in another corporation.

An S corporation's separately stated items generally are identical to those separately stated by _________________________.

husband and wife must consent to an S election if they own their stock jointly.

Pass­through S corporation losses can reduce the basis in the shareholder's loan to the entity, but distributions do not reduce loan basis.

Explain how the domestic production activities deduction is used in computing income amounts for an S corporation.

Tax-exempt income at the corporate level flows through as exempt to S shareholders.

Randall owns 800 shares in Fabrication, Inc., an S corporation in Moss Hill, Texas. In 2014, the basis in his stock is $30,000, before the adjustment for this year's losses. During 2014, Randall's share of the corporation's ordinary Loss is $20,000, and his share of its capital loss is $15,000. How much can Randall deduct due to these losses?

A termination occurs on the day that a corporation to be an S corporation.

An S election made before becoming a corporation is valid only beginning with the first 12-month tax year.

What statement is correct with respect to an S corporation?

A new S corporation shareholder can revoke the S election unilaterally, if he/she owns how much of the existing S corporation's stock?

Depreciation recapture income is a Schedule K item on the Form 1120S.

Mock Corporation converts to S corporation status in 2014. Mock used the LIFO inventory method in 2013 and had a LIFO inventory of $435,000 (FIFO value of $550,000) on the date of the S election. How much tax must be added to Mock's 2013 corporate tax liability, assuming that Mock is subject to a 35% tax rate.

Depreciation recapture income is a computed amount.

Gene Grams is a 45% owner of a calendar year S corporation during 2014. His beginning stock basis is $230,000, and the S corporation reports the following items. $\begin{array}{lr}\text { Ordinary income } & \$ 72,000 \\\text { Short-term capital gain } & 16,000 \\\S 1231 \text { loss } & 6,000 \\\text { Tax-exempt interest income } & 5,000 \\\text { Calculate Grams's stock basis at year-end. } &\end{array}$