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Exam 22: S Corporations

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Question 71

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An S shareholder's basis in his or her stock can be reduced below zero.

A) True
B) False

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Question 72

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Bidden,Inc. ,a calendar year S corporation,incurred the following items. Calculate Bidden's nonseparately computed income.

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Question 73

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Compensation for services rendered to an S corporation is not subject to FICA taxes.

Brew,an S corporation,has gross receipts of $190,000 and gross income of $170,000.Brew has AEP of $22,000 and ordinary income of $29,000.It has passive investment income of $100,000,with $40,000 of expenses directly related to the production of passive investment income.Calculate Brew's excess net passive income and any passive investment income penalty tax.

Lott Corporation in Macon,Georgia converts to S corporation status in 2010.Lott used the LIFO inventory method in 2009 and had a LIFO inventory of $420,000 (FIFO value of $550,000) .How much tax must be added to the 2009 corporate tax liability,assuming that Lott is subject to a 35% tax rate.

The debt basis always is adjusted back to the original amount before any increase is made in the stock basis.

How may an S corporation manage its liability for the built-in gains tax?

As a general rule,S corporation treatment is not advantageous when the individual tax rate far exceeds the applicable corporate tax rate.

An S corporation may not amortize organizational expenses.

An S shareholder's basis does not include a ratable share of any S corporation liabilities.

The Schedule M-3 is the same for a C corporation and an S corporation.

When an S corporation liquidates,which of its tax attributes disappear?

An S corporation does not recognize a loss when distributing assets that are worth less than their basis.

On December 31,2009,Erica Sumners owns one share of an S corporation's 10 outstanding shares of stock.The basis of Erica's share is $300.During 2010,the S corporation has no income or deductions,but incurs a loss of $3,650.Using the separate-share approach,determine the amount of the loss allocated to Erica and calculate her stock basis in 2010.

Malin,a 51% owner of an S corporation,has a stock basis of zero at the beginning of the year.Malin's basis in a $30,000 loan made to the S corporation and evidenced by a corporate note has been reduced to zero by pass-through losses.During the year,her net share of corporate ordinary income is $12,000.At the end of the year,Malin receives a $14,000 distribution.Determine any taxable income from the distribution.

An S corporation must recognize ____________________ but not ____________________ on distributions of appreciated property.

Explain how the domestic production activities deduction is used for an S corporation.

A distribution of cash or other property by an S corporation to shareholders that does not exceed the balance of AAA during a one-year period following an S election termination receives special capital gain treatment.

An S shareholder who dies during the corporate tax year must report his or her share of the pro rata income (or loss)up to the date of death on the final individual tax return.

Samantha owned 1,000 shares in Evita,Inc. ,an S corporation,that uses the calendar year.On October 11,2010,Samantha sells all of her Evita stock.Her basis at the beginning of 2010 was $60,000.Her share of the corporate income for 2010 was $22,000,and she receives a distribution of $37,000 between January 1 and October 11,2010.Her basis at the time of the sale is: