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Exam 12: S Corporations

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Question 51

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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.

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Question 52

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

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Question 53

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A one-person LLC can be a shareholder of an S corporation.

An S corporation is subject to the following taxes) .

If the beginning balance in OAA is zero and the following transactions occur, what is the ending OAA balance? $\begin{array} { l c } \text { Depreciation recapture income } & \$ 21,000 \\\text { Payroll tax penalty } & 4,200 \\\text { Tax-exempt interest } & 5,700 \\\text { Nontaxable life insurance proceeds } & 3,900 \\\text { Insurance premiums paid (nondeductible) } & 2,900 \\\text { Charitable contributions } & 17,000\end{array}$

You are given the following facts about a solely owned S corporation. What is the shareholder's ending stock basis? $\begin{array}{l}\begin{array} { l r } \text { Increase in AAA } & \$ 31,000 \\\text { Increase in OAA } & 6,300 \\\text { Payroll tax penalty } & 2,140 \\\text { Beginning stock basis } & 39,800 \\\text { Stock purchases } & 22,000 \\\text { Tax-exempt life insurance proceeds } & 4,800 \\\text { Life insurance premiums paid } & 2,700\end{array}\\\text { (nondeductible) }\end{array}$

Estella, Inc., a calendar year S corporation, incurred the following items during the tax year. $\begin{array} { l r } \text { Municipal bond interest } & \$ 7,000 \\\text { Sales } & 120,000 \\\text { Depreciation recapture income } & 14,000 \\\text { Long-term capital gain } & 20,000 \\\text { Cost of goods sold } & ( 42,000 ) \\\text { Administrative expenses } & ( 15,000 ) \\\text { Depreciation expense } & ( 13,000 ) \\\text { Charitable contributions } & ( 10,000 ) \\20 \% \text { QBI deduction } & 4,370\end{array}$ Calculate Estella's nonseparately computed income.

The termination of an S election occurs on the day after a corporation ceases to be a qualifying S corporation.

The maximum number of actual shareholders in an S corporation is:

Some ____________________and_______ taxation rules apply to an S corporation.

Alomar, a cash basis S corporation in Orlando, FL, holds the following assets and liabilities on January 1, 2020, the date the S election is made. $\begin{array}{lcr}&\text { Adjusted Basis }&\text { Fair Market Value }\\\text { Cash } & \$ 200,000 & \$ 200,000 \\\text { Accounts receivable } & -0- & 105,000 \\\text { Equipment } & 110,000 & 100,000 \\\text { Land } & 1,800,000 & 2,500,000 \\\text { Accounts payable } & -0- & 110,000\end{array}$ During the year, Alomar collects the accounts receivable and pays the accounts payable. The land is sold for $3 million, and the taxable income for the year is $590,000. Calculate any built-in gains tax.

The Section 179 expense deduction is a Schedule K item on the Form 1120S.

What method is used to allocate S corporation income or losses unless an election to the contrary is made) ?

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

The corporate-level tax on recognized built-in gains applies when an S corporation disposes of an asset in a taxable disposition within five years after the date on which the S election took effect.

Shareholders owning an)________ of shares voting and nonvoting) may____________________ revoke an S election.

The LIFO recapture tax is a variation of the passive investment income penalty tax.

A newly formed S corporation does not receive any tax benefit from a C corporation's NOL incurred in its first election tax year.

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

There are no advantages for an S corporation to issue § 1244 stock.