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Exam 21: S Corporations

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Question 31

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Potter Corporation reports the following results for the current year: At the end of the year,Potter's SubChapter E&P is $50,000.What is the amount of Potter's excess net passive income?

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Question 32

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Which of the following statements about stock ownership is not correct?

A) A C corporation can own stock of an S corporation.
B) An S corporation can own stock of a C corporation.
C) A tax-exempt charity can own stock of an S corporation.
D) An S corporation can own stock of a Qualified Subchapter S Subsidiary.

E) B) and D)
F) A) and B)

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Question 33

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Identify which of the following statements is true.

Alligood Corporation has two classes of common stock outstanding.The Class A and Class B common stock give the shareholders identical rights and interests in the profits and assets of the corporation.Class A stock has one vote per share.Class B stock is nonvoting.Alligood Corporation may

Cactus Corporation,an S Corporation,had accumulated earnings and profits of $100,000 at the beginning of 2009.Tex and Shirley each own 50% of the stock and have a basis in their stock of $50,000 on January 1,2009.Cactus does not make any distributions during 2009,but had $200,000 of ordinary income.In 2010,ordinary income was $100,000 and distributions were $100,000.What is Tex's basis at January 1,2011?

Identify which of the following statements is false.

An S corporation reports ordinary income of $120,000 after deducting $20,000 for Fred's salary.Fred and his three children own the S corporation equally.The IRS determines Fred's stock transfer to his three children is not bona fide.Reasonable compensation for Fred is $40,000.How much of the S corporation's $140,000 pre-salary income must be reported by Fred?

Shamrock Corporation has two classes of common stock outstanding.The Class A and Class B common stock give the shareholders identical rights and interests in the profits and assets of the corporation.Class A has one vote per share.Class B is nonvoting.Can Shamrock Corporation make an S corporation election?

Corporations and partnerships can be S corporation shareholders.

Trusts that can own S corporation stock include all of the following except

S shareholders cannot increase the basis of their stock by a ratable share of the general S corporation liabilities.

Swamp Corporation,a calendar-year taxpayer,has been an S corporation for several years.However,the corporation has become quite profitable,and management feels that it would be advantageous to make a public stock offering.What are Swamp Corporation's options concerning the date of revocation of the S election?

Identify which of the following statements is true.

Up to six generations of a family are considered as one shareholder for purposes of the 100-shareholder limit.

Rocky Corporation,an S corporation,reports the following results for the current year: Rocky's AAA and accumulated E&P balances at the beginning of the year are $80,000 and $50,000,respectively.Rocky makes a $100,000 cash distribution to its sole shareholder on June 1 and a second $100,000 cash distribution on December 1.The shareholder's basis for Rocky stock on January 1 was $120,000.Discuss the tax consequences of these transactions.

On June 30 of the current year,the S election of Great Corporation is terminated,thus creating a six-month S short year and a six-month C short year.Great Corporation is a calendar-year taxpayer.The S short-year return is due

Identify which of the following statements is true.

Arnie is a 50% shareholder in Energy Corporation,an S corporation.The S corporation had an $80,000 ordinary loss last year and $10,000 of ordinary income this year.Before accounting for last year's losses,Arnie's basis in his Energy stock is $32,000 and Energy owed Arnie $4,000 (an unsecured note having a basis of $4,000)at the end of last year.In addition,Energy had $100,000 of other liabilities owed to creditors other than Arnie at the end of last year.What income and loss must Arnie report on his current return as a result of owning the Energy stock (ignoring the at-risk and passive activity limitations)?

Dixon Corporation was incorporated on January 1,2005.The corporation made its S election on April 1,2008.The corporation retains an E&P balance from its C corporation days.Which one of the following current-year income and expense items is not included in Dixon Corporation's Accumulated Adjustments Account?

Zebra Corporation has always been an S corporation and is 100% owned by Paul.Paul has a basis of $40,000 in his Zebra stock at the beginning of the year.During the year,Zebra has an ordinary loss of $20,000 and a long-term capital gain of $10,000.In addition,Zebra Corporation distributed $55,000 in cash to Paul on December 1.Will the distribution cause Paul to recognize a gain? If so,what are its amount and character?