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Exam 12: S Corporations

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Question 31

Multiple Choice

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Which of the following reduces a shareholder's S corporation stock basis?

A) Depletion deductions in excess of the basis of property.
B) Illegal kickbacks paid.
C) Nontaxable income.
D) Sales.

E) None of the above
F) All of the above

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Question 32

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The passive investment income of an S corporation includes gains from the sale of securities.

A) True
B) False

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Question 33

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If an S corporation has C corporation E & P and passive investment income in excess of ____________________ % of its gross receipts for ____________________ consecutive taxable years, the S election is terminated at the beginning of the ____________________ year.

Amit, Inc., an S corporation, holds an AAA balance of $614,000 at the beginning of the tax year. During the year, the following items occur. $\begin{array} { l r } \text { Operating income } & \$ 501,000 \\\text { Interest income } & 6,500 \\\text { Dividend income } & 13,020 \\\text { Municipal bond interest income } & 6,000 \\\text { Long-term capital loss from sale of investment land } & 7,400 \\\text { Section } 179 \text { depreciation deduction } & 6,000 \\\text { Charitable contributions } & 19,000 \\\text { Cash distributions } & 57,000\end{array}$ ? Amit's ending AAA balance is:

Depletion in excess of basis in property causes a(n) ____________________ adjustment to an S shareholder's basis.

Samantha owned 1,000 shares in Evita, Inc., an S corporation, that uses the calendar year. On October 11, Samantha sells all of her Evita stock. Her stock basis at the beginning of the tax year was $60,000. Evita's ordinary income for the year was $22,000, and she receives a distribution of $35,000 on May 3rd. Her stock basis at the time of the sale is:

Which could constitute a second class of stock?

Non-separately computed loss ____________________ a S shareholder's stock basis.

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

You are a 60% owner of an S corporation. Calculate your ending stock basis, based upon these facts. $\begin{array} { l r } \text { Beginning stock basis } & \$ 52,600 \\\text { Purchases of additional stock } & 15,000 \\\text { Insurance premiums paid (nondeductible) } & 3,600 \\\text { Tax-exempt interest income } & 5,230 \\\text { Payroll tax penalty } & 3,770 \\\text { Increase in AAA } & 22,400 \\\text { Increase in O A A} & 5,800\end{array}$

S corporation status allows shareholders to realize tax benefits from corporate losses immediately (assuming sufficient stock basis).

During 2016, Miles Nutt, the sole shareholder of a calendar year S corporation, received a distribution of $16,000. On December 31, 2015, his stock basis was $4,000. The corporation earned $11,000 ordinary income during the year. It has no accumulated E & P. Which statement is correct?

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

A calendar year C corporation reports a $41,000 NOL in 2015, but it elects S status for 2016 and generates an NOL of $30,000 in that year. At all times during 2016, the stock of the corporation was owned by the same 10 shareholders, each of whom owned 10% of the stock. Kris, one of the 10 shareholders, holds an S stock basis of $2,300 at the beginning of 2016. How much of the 2016 loss, if any, is deductible by Kris?

The carryover period for the NOLs of a C corporation does not continue to run during S corporation years.

Which transaction affects the Other Adjustments Account on an S corporation's Schedule M-2?

All tax preference items flow through the S corporation, to be included in the shareholders' AMT calculations.

An S corporation is subject to the following tax.

On December 31, 2016, Erica Sumners owns one share of an S corporation's 10 outstanding shares of stock. The basis of Erica's share is $300. During 2017, the S corporation incurs a loss of $3,650. Determine the amount of the loss allocated to Erica, and calculate her stock basis at the end of 2017.

S corporations are treated as partnerships under state property laws.