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Exam 12: S: Corporations

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Question 1

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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) A) and C)
F) B) and C)

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Question 2

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

A) True
B) False

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False

Question 3

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An S corporation is limited to a theoretical maximum of shareholders.

An S corporation shareholder's stock basis includes his or her direct investments plus a ratable share of any corporate liabilities.

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

On January 1, 2014, Kinney, Inc., an electing S corporation, holds $5,000 of AEP and $9,000 in AAA. Kinney has two shareholders, Eric and Maria, each of whom owns 500 shares of Kinney's stock. Kinney's 2014 taxable income is $6,000. Kinney distributes $6,000 to each shareholder on February 1, 2014, and distributes another $3,000 to each shareholder on September 1. How is Erin taxed on the distribution?

Non­separately computed loss a S shareholder's stock basis.

Individuals Adam and Bonnie form an S corporation, with Adam contributing cash of $100,000 for a 50% interest, and Bonnie contributing appreciated ordinary income property with an adjusted basis of $20,000 and a fair market value of $100,000. a. Determine Bonnie's initial basis in her stock, assuming that she receives a 50% interest. b. The S corporation sells the property for $120,000. Determine Adam's and Bonnie's stock basis after the sale. c. Determine Adam's and Bonnie's gain or loss if the company is liquidated.

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?

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

Which corporation is eligible to make the S election?

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

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

Chris, the sole shareholder of Taylor, Inc., elects during 2014 to terminate the S election, effective January 1, 2015. As of the end of 2014, Taylor, Inc., holds AAA of $120,000 and OAA of $13,000. Chris receives a cash distribution of $130,000 on January 15, 2015. If his stock basis is $220,000 before the distribution, calculate Chris's taxable amount and his ending stock basis.

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 corporation can claim a deduction for its NOL carryovers.

Arizona is a(n) property state for purposes of the S corporation requirements.

Claude Bergeron sold 1,000 shares of Ditta, Inc., an S corporation, for $12,000. He had owned the stock for three years and had a stock basis of $111,000 in the shares. Claude is single, and he is the original owner of the § 1244 stock shares. Calculate the appropriate tax treatment.

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.

You are given the following facts about a 40% owner of an S corporation, and you are asked to prepare her ending stock basis.