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Exam 12: S Corporations

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Question 61

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On January 2, 2019, Tim loans his S corporation $10,000. By the end of 2019, Tim's stock basis is zero, and the basis in his note has been reduced to $8,000. During 2020, the company's operating income is $10,000. The company makes 2020 distributions of $8,000 to Tim. He reports an) :

A) $2,000 LTCG.
B) $8,000 LTCG.
C) Stock basis of $2,000.
D) Loan basis of $10,000.

E) A) and B)
F) All of the above

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Question 62

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If a resident alien shareholder moves outside the United States, the S election is terminated.

A) True
B) False

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Question 63

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Which item is not included in an S corporation's nonseparately computed income?

A capital loss allocated to a shareholder always reduces the Other Adjustments Account.

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

An S corporation must possess which of the following characteristics?

A per-day, per-share allocation of flow-through S corporation items must be used.

Which corporation is eligible to make the S election?

The passive investment income of an S corporation includes net capital gains from the sale of stocks and securities.

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

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

Kinney, Inc., an electing S corporation, holds $5,000 of AEP and $9,000 in AAA at the beginning of the calendar tax year. Kinney has two shareholders, Eric and Maria, each of whom owns 500 shares of Kinney's stock. Kinney's taxable income is $6,000 for the year. Kinney distributes $6,000 to each shareholder on February 1, and it distributes another $3,000 to each shareholder on September 1. How is Eric taxed on the distribution?

On January 2, 2019, David loans his S corporation $10,000. By the end of 2019 David's stock basis is zero and the basis in his note has been reduced to $8,000. During 2020, the company's operating income is $10,000. The company makes 2020 distributions to David of $11,000. David reports an) :

An item such as tax-exempt interest that appears in the Other Adjustments Account affects stock basis, but not AAA.

The exclusion of gain on disposition of small business stock is not available on disposition of S corporation stock.

The final individual tax return of an S shareholder who dies during the S corporation tax year must report his or her share of the pro rata income loss) items up to the date of death.

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 through the date of sale, and Samantha receives a distribution of $35,000 on May 3rd. Her stock basis at the time of the sale is:

If an S corporation's beginning balance in OAA is zero and the following transactions occur, what is the ending OAA balance? $\begin{array} { l r } \text { Depreciation recapture income } & \$ 21,000 \\\text { Payroll tax penalty } & 4,200 \\\text { Tax-exempt interest income } & 5,300 \\\text { Nontaxable life insurance proceeds } & 5,100 \\\text { Life insurance premiums paid (nondeductible) } & 2,800\end{array}$

An S shareholder's basis is decreased by distributions treated as being paid from AAA.

Nonseparately computed loss_______ increases, reduces) a S shareholder's stock basis.