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Exam 22: S Corporations

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Question 61

True/False

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Persons who were S shareholders during any part of the year before the election date,but were not shareholders when the election was made,also must consent to an S election.

A) True
B) False

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Question 62

Multiple Choice

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

A) Any method agreed to by all of the shareholders.
B) Per-day allocation.
C) FIFO method.
D) LIFO method.
E) Some other method.

F) A) and D)
G) A) and E)

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Question 63

Multiple Choice

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On January 1,2015,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 2015 taxable income is $6,000.Kinney distributes $6,000 to each shareholder on February 1,2015,and distributes another $3,000 to each shareholder on September 1.How is Erin taxed on the distribution?

Non-separately computed loss ____________________ a S shareholder's stock basis.

Separately stated items are listed on Schedule _________________________ of the Form 1120S.

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 2015,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?

Discuss two ways that an S election may be terminated.

Liabilities affect the owner's basis differently in an S corporation than they do in a partnership.

Several individuals acquire assets on behalf of Skip Corporation on May 28,2015,purchased assets on June 3,2015,and began business on June 11,2015.They subscribe to shares of stock,file articles of incorporation for Skip,and become shareholders on June 21,2015.The S election must be filed no later than 2 1/2 months after:

For a new corporation,a premature S election may not be effective.

Chris,the sole shareholder of Taylor,Inc. ,elects during 2015 to terminate the S election,effective January 1,2016.As of the end of 2015,Taylor,Inc. ,holds AAA of $120,000 and OAA of $13,000.Chris receives a cash distribution of $130,000 on January 15,2016.If his stock basis is $220,000 before the distribution,calculate Chris's taxable amount and his ending stock basis.

A distribution from OAA is taxable.

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

Where the S corporation rules are silent,C corporation provisions apply.

An S corporation can claim a deduction for its NOL carryovers.

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

S corporations are treated as partnerships under state property laws.

Gene Grams is a 45% owner of a calendar year S corporation during 2015.His beginning stock basis is $230,000,and the S corporation reports the following items. Ordinary income $72,000 Short-term capital gain 16,000 § 1231 loss 6,000 Tax-exempt interest income 5,000 ​ Calculate Grams's stock basis at year-end.

Post-termination distributions that are charged against OAA are received tax-free.

Compare the distribution of property rules for an S corporation with the corresponding partnership rules.