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Chapter 22 S Corporations

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Question;Chapter 22;S Corporations;True / False Questions;1. S;corporations offer the same legal protection to owners as C corporations.;True False;2. The S;corporation rules are less complex for S corporations that have earnings and;profits from prior C corporation years than for S corporations that do not have;earnings and profits from prior C corporation years.;True False;3. The same;exact requirements for forming and contributing property govern S corporations;and partnerships.;True False;4. S;corporations may have no more than 50 shareholders, but members of the same;family only count as one shareholder.;True False;5. Differences;in voting powers are permissible across shares of S corporation stock as long;as the shares have identical distribution and liquidation rights.;True False;6. Publicly;traded corporations cannot be treated as S corporations.;True False;7. To make;an S election effective as of the beginning of the current year, an S;corporation must file Form 2553 within 3? months after the beginning of the;year.;True False;8. Bobby T;(95% owner) would like to elect S corporation status for DJ, Inc. Dallas (5%;owner) does not want to elect S corporation status. Bobby T cannot elect S;status for DJ, Inc. without Dallas' consent.;True False;9. An S;corporation may be voluntarily or involuntarily terminated.;True False;10. An S;corporation can make a voluntary revocation of an S election if shareholders;holding more than 25 percent of the S corporation stock (including nonvoting;shares) agree.;True False;11. Bobby T;(75% owner) would like to terminate the S corporation status for DJ, Inc.;Dallas (5% owner) does not want to terminate the S corporation status. Bobby T;can terminate the S status for DJ, Inc. without Dallas' consent.;True False;12. An S;election is terminated if the S corporation has passive investment income in;excess of 20 percent of gross receipts for three consecutive years.;True False;13. If an S;corporation never operated as a C corporation, it may earn passive investment income;without fear of an involuntary S election termination.;True False;14. If an S;corporation shareholder sells her stock to a nonresident alien, it will;automatically terminate the S election.;True False;15. The;specific identification method is a method an S corporation may use to allocate;its income across short tax years that result from an involuntary S election;termination.;True False;16. The;specific identification method and monthly allocation method are methods an S;corporation may use to allocate its income across short tax years that result;from an involuntary S election termination.;True False;17. After;terminating or voluntarily revoking S corporation status, a corporation may elect;it again, but it generally must wait until the beginning of the third tax year;after the tax year in which it terminated the election.;True False;18. Like;partnerships, S corporations determine their accounting periods and make;accounting method elections at the entity level.;True False;19. Like;partnerships and C corporations, S corporations face several restrictions on;using the cash method of accounting.;True False;20. An S;corporation can use a non-calendar year-end if it can establish a business;purpose for an alternative year end.;True False;21. SoTired;Inc., a C corporation with a June 30 year-end, elects S corporation status this;year. Assuming no special elections, SoTired, Inc. will continue to use a June;30 year-end as an S corporation.;True False;22. S;corporations have considerable flexibility in making special profit and loss;allocations.;True False;23. Separately;stated items are tax items that are treated similarly for tax purposes as a;shareholder's share of ordinary business income (loss).;True False;24. S;corporations are not entitled to a dividends received deduction.;True False;25. An S;corporation shareholder calculates his initial basis upon formation of the;corporation like C corporation shareholders.;True False;26. Like;partnerships, an S corporation shareholder's basis is dynamic and must be;adjusted annually.;True False;27. Unlike;partnerships, adjustments that decrease an S corporation shareholder's basis;may reduce it below zero.;True False;28. In;general, an S corporation shareholder makes increasing adjustments to her basis;first, followed by adjustments that decrease basis.;True False;29. S;corporation shareholders are not allowed to include any S corporation debt in;their stock basis.;True False;30. For an S;corporation shareholder to deduct it, a loss must clear three separate hurdles;(1) tax basis, (2) at-risk amount, and (3) tax-shelter rules.;True False;31. Losses not;deductible due to the basis rules are carried over to future years.;True False;32. Regarding;debt, S corporation shareholders are deemed at risk only for direct loans they;make to S corporations.;True False;33. An S;corporation shareholder's allocable share of ordinary business income (loss) is;classified as self-employment income for tax purposes.;True False;34. An S;corporation shareholder's allocable share of business income that is a passive;activity is considered net investment income for purposes of the Net Investment;Income tax.;True False;35. S;corporations are treated in part like C corporations and in part like;partnerships with respect to tax deductions for qualifying employee fringe;benefits.;True False;36. For S;corporations with earnings and profits from prior C corporation years, the;taxation of distributions is very similar to the rules for partnerships.;True False;37. For S;corporations without earnings and profits from prior C corporation years, the;taxation of distributions is very similar to the rules for partnerships.;True False;38. Similar to;an S corporation shareholder's stock basis, the AAA may not have a negative;balance.;True False;39. Distributions;to owners may not cause the AAA to go negative or to become more negative.;True False;40. When an S;corporation distributes appreciated property to its shareholders the S;corporation recognizes gain as though it had sold the appreciated property for;its fair market value just prior to the distribution.;True False;41. When an S;corporation distributes appreciated property to its shareholders, the;shareholders who receive the distributed property recognize their distributive;share of the deemed gain.;True False;42. S;corporations recognize gains and losses on distributions of property.;True False;43. S;corporation distributions are not taxable to the extent of stock and debt;basis.;True False;44. During the;post-termination transition period, property distributions are tax-free to;shareholders to the extent they do not exceed the corporation's AAA balance and;the individual shareholder's basis in the stock.;True False;45. S;corporations generally recognize gain or loss on each asset they distribute in;liquidation.;True False;46. The;built-in gains tax does not apply to S corporations that never operated as C;corporations.;True False;47. Built-in;gains recognized fifteen years after a C corporation elects to become an S;corporation are subject to the built-in gains tax.;True False;48. S;corporations without earnings and profits from prior C corporation years are;not subject to the excess net passive income tax.;True False;49. C;corporations that elect S corporation status and use the FIFO inventory method;are subject to the FIFO recapture tax.;True False;50. The;estimated tax rules for S corporations generally follow the rules for C;corporations.;True False;51. S;corporations are required to file Form 1120S, U.S. Income Tax Return for an S;Corporation, with the IRS by the fifteenth day of the fourth month after the S;corporation's year end.;True False;Multiple Choice Questions;52. Which of;the following is prohibited from being an S corporation shareholder?;A. Foreign;citizens that are U.S. residents.;B. U.S.;citizens.;C. Corporations.;D. 51;unrelated individuals.;E. None of;these.;53. Which of;the following is not considered a family member for purposes of the S;corporation shareholder limit?;A. brother.;B. great-grandparent.;C. grandchildren.;D. grandparent.;E. None of;these.;54. Tone Loc;and 89 of his biggest fans formed an S corporation, 2hit, Inc., as the original;ninety shareholders. Tone then transferred some of his stock to his;grandfather, four of Tone's cousins, five of Tone's children, three of Tone's;grandchildren, and 2 close friends. For the S corporation shareholder limit;rules, how many shareholders does 2hit, Inc. have?;A. 90.;B. 92.;C. 95.;D. 97.;E. None of;these.;55. Which of;the following is a requirement to be an S corporation?;A. be a domestic;or foreign corporation;B. have only;one class of stock;C. have;fewer than 75 shareholders;D. have at;least one corporate shareholder;E. None of;these.;56. Suppose;Hassell formed a C corporation, NewCorp. Inc., in 2014 with a calendar tax year;and made an S election on April 14, 2014 with the consent of NewCorp. Inc.'s;shareholders: Hassell, Richie Cunningham, and Arnold's, Inc. (a C corporation).;When is the S election effective?;A. January;1, 2014.;B. April 14;2014.;C. January;1, 2015.;D. April 14;2015.;E. Never.;57. J. D.;formed Clampett, Inc. as a C corporation (calendar tax year) with J. D.;Granny, and Jethro, Inc. (a C corporation) as shareholders. On January 15;2014, Jethro, Inc. sold all its shares to Jane Hathaway. On February 28, 2014;Clampett, Inc. filed an S corporation election, with J. D., Granny, and Jane;all consenting to the election. What is the earliest effective date of the S;election?;A. January;1, 2014.;B. January;1, 2015.;C. January;1, 2016.;D. February;28, 2015.;E. Never.;58. If Annie;and Andy (each a 30% shareholder) file a revocation on February 10, 2014 to;terminate their S corporation's S election, what is the effective date of the S;corporation termination (assuming they do not specify one)?;A. January;1, 2014.;B. February;10, 2014.;C. January;1, 2015.;D. February;10, 2015.;E. None of;these.;59. If Annie;and Andy (each a 30% shareholder) file a revocation on March 18, 2014 to;terminate their S corporation's S election, what is the effective date of the S;corporation termination (assuming they do not specify one)?;A. January;1, 2014.;B. March 16;2014.;C. January;1, 2015.;D. March 16;2015.;E. None of;these.;60. Which of;the following would not result in an S election termination?;A. Having;120 unrelated shareholders.;B. Having a;corporation as a shareholder.;C. Issuing a;second class of stock.;D. Having;excess passive investment income for two consecutive years.;E. None of;these.;61. On March;15, 2014, J. D. sold his Clampett, Inc. (an S corporation) shares to Ellie Mae;Inc. (a C corporation), terminating Clampett, Inc.'s S election on March 15;2014. Absent permission from the IRS, what is the earliest date Clampett, Inc.;may again elect to be taxed as an S corporation?;A. January;1, 2020.;B. January;1, 2019.;C. January;1, 2018.;D. January;1, 2017.;E. January;1, 2015.;62. The IRS;may consent to an early re-election of S corporation status after a termination;under which of the following;A. The;corporation is now owned more than 10 percent by shareholders who were not;owners at the time of termination.;B. The;corporation is now owned more than 60 percent by shareholders who were owners;at the time of termination.;C. The;termination was not reasonably within the control of the corporation or;shareholders with a substantial interest in the corporation and was not part of;a planned termination by the corporation or shareholders.;D. The;corporation had only two ineligible shareholders at the termination date.;E. None of;these.;63. Assume Joe;Harry sells his 25% interest in Joe's S Corp. Inc. to Tyrone on January 29.;Using the daily allocation method, how much income does Joe Harry report if;Joe's S Corp. Inc. earned $200,000 from January 1 to January 28 and a total of;$1,460,000 from January 1 through December 31 (365 days)?;A. $28,000.;B. $50,000.;C. $112,000.;D. $200,000.;E. None of;these.;64. Assume Joe;Harry sells his 25% interest in Joe's S Corp. Inc. to Tyrone on January 29.;Using the specific identification allocation method, how much income does Joe;Harry report if Joe's S Corp. Inc. earned $200,000 from January 1 to January 28;and a total of $1,460,000 from January 1 through December 31 (365 days)?;A. $28,000.;B. $50,000.;C. $112,000.;D. $200,000.;E. None of;these.;65. Which of;the following is not a separately stated item for S corporations?;A. Dividends.;B. Interest;income.;C. Charitable;contributions.;D. Investment;interest expense.;E. All of;these are separately stated items.;66. Vanessa;contributed $20,000 of cash and land with a fair market value of $100,000 and;an adjusted basis of $40,000 to Cook, Inc. (an S corporation) when it was;formed. The land was encumbered by a $30,000 mortgage executed two years;before. What is Vanessa's tax basis in Cook, Inc. after formation?;A. $20,000.;B. $30,000.;C. $60,000.;D. $80,000.;E. $120,000.;67. Which of;the following is not an adjustment to an S corporation shareholder's stock;basis?;A. Increase;for any contributions to the S corporation during the year.;B. Increase;for shareholder's share of ordinary business income.;C. Decrease;for shareholder's share of nondeductible items.;D. Increase;for distributions during the year.;E. None of;these.;68. Suppose at;the beginning of 2014, Jamaal's basis in his S corporation stock was $27,000;and that Jamaal has loaned the S corporation $10,000. During 2014, the S;corporation reported an $80,000 ordinary business loss and no separately stated;items. How much of the ordinary loss is deductible by Jamaal if he owns 50% of;the S corporation?;A. $10,000.;B. $27,000.;C. $37,000.;D. $40,000.;E. None of;these.;69. Suppose at;the beginning of 2014, Jamaal's basis in his S corporation stock was $27,000;and that Jamaal has loaned the S corporation $10,000. During 2014, the S;corporation reported an $80,000 ordinary business loss and no separately stated;items. After any loss deductions this year, what is Jamaal's stock and debt;basis at the end of the year if Jamaal is a 50% shareholder of the S;corporation?;A. $27,000;stock basis, 10,000 debt basis.;B. $0 stock;basis, $10,000 debt basis.;C. $67,000;stock basis, $10,000 debt basis.;D. -$13,000;stock basis, $10,000 debt basis.;E. None of these.;70. Suppose at;the beginning of 2014, Jamaal's basis in his S corporation stock is $0, he has;a $0 debt basis associated with a $10,000 loan he made to the S corporation and;a $5,000 suspended loss from the S corporation. In 2014, Jamaal contributed;$8,000 to the S corporation, and the S corporation had ordinary income of;$4,000. Assume that Jamaal owns 40% of the S corporation. How much net income;or loss does Jamaal report this year from the S corporation?;A. $4,000;income.;B. $1,600;income.;C. $1,000;loss.;D. $3,400;loss.;E. None of;these.;71. Suppose at;the beginning of 2014, Jamaal's basis in his S corporation stock is $0, he has;a $0 debt basis associated with a $10,000 loan he made to the S corporation and;a $5,000 suspended loss from the S corporation. In 2014, Jamaal contributed;$8,000 to the S corporation, and the S corporation had ordinary income of;$4,000. Assume that Jamaal owns 40% of the S corporation. What is Jamaal's;stock and debt basis at the end of 2014?;A. $0 stock;basis, $4,600 debt basis.;B. $0 stock;basis, $9,600 debt basis.;C. $4,600;stock basis, $0 debt basis.;D. $9,600;stock basis, $0 debt basis.;E. None of;these.;72. Which of;the following is the correct order in which loss limitation rules are applied?;A. basis;rules 1st, at-risk rules 2nd, passive loss rules 3rd.;B. passive;loss rules 1st, at-risk rules 2nd, basis rules 3rd.;C. basis;rules 1st, passive loss rules 2nd, at-risk rules 3rd.;D. passive;loss rules 1st, basis rules 2nd, at-risk rules 3rd.;E. None of;these.;73. Suppose;Clampett, Inc. terminated its S election on August 28, 2014. At the end of the;S corporation's short tax year ending on August 28, J. D.'s stock basis and;at-risk amounts were both zero (he has never had debt basis), and he had a;suspended loss of $20,000. In 2015, J. D. made additional capital contributions;of $5,000 on March 15 and $12,000 on September 20. How much loss may J. D.;deduct in 2015?;A. $0.;B. $5,000.;C. $17,000.;D. $20,000.;E. None of;these.;74. Suppose;Clampett, Inc. terminated its S election on August 28, 2014. At the end of the;S corporation's short tax year ending on August 28, J. D.'s stock basis and;at-risk amounts were both zero (he has never had debt basis), and he had a;suspended loss of $20,000. In 2015, J. D. made additional capital contributions;of $5,000 on March 15 and $12,000 on September 5. How much loss may J. D.;deduct in 2015?;A. $0.;B. $5,000.;C. $17,000.;D. $20,000.;E. None of;these.;75. Which of;the following is not a true statement?;A. For;shareholder-employees who own 2 percent or less of the entity, the S;corporation gets a tax deduction for qualifying fringe benefits, and the;benefits are nontaxable to the employees.;B. For;shareholder-employees who own more than 2 percent of the S corporation, the S;corporation gets a tax deduction, but the otherwise qualifying fringe benefits;are taxable to the more-than-2-percent shareholder-employees.;C. S;corporation owners have a tax incentive to pay themselves a low salary.;D. An S;corporation shareholder's allocable share of ordinary business income (loss) is;not classified as self-employment income for tax purposes.;E. None of;these statements is false.;76. Which of;the following income items from an S corporation is not considered investment;income for purposes of the Net Investment Income tax?;A. Passive;income.;B. Interest;income.;C. Dividends.;D. Short-term;capital gains.;E. All of;these are considered investment income for the Net Investment Income tax.;77. Suppose at;the beginning of 2014, Jamaal's basis in his S corporation stock is $1,000, and;he has a $10,000 debt basis associated with a $10,000 loan he made to the S;corporation. In 2014, Jamaal's share of S corporation income is $4,000, and he;received a $7,000 distribution from the S corporation. How much income does;Jamaal report in 2014 from these transactions?;A. $0.;B. $4,000.;C. $6,000.;D. $7,000.;E. None of;these.;78. Suppose at;the beginning of 2014, Jamaal's basis in his S corporation stock is $1,000, and;he has a $10,000 debt basis associated with a $10,000 loan he made to the S;corporation. In 2014, Jamaal's share of S corporation income is $4,000, and he;received a $7,000 distribution from the S corporation. What is Jamaal's stock;and debt basis after these transactions?;A. $0 stock;basis, $8,000 debt basis.;B. $0 stock;basis, $10,000 debt basis.;C. $5,000;stock basis, $10,000 debt basis.;D. $5,000;stock basis, $3,000 debt basis.;E. None of;these.;79. Clampett;Inc. (an S corporation) previously operated as a C corporation. Distributions;from Clampett, Inc. are deemed to be paid in the following order;A. shareholder's;remaining stock basis, prior C corporation earnings and profit, the AAA;account.;B. shareholder's;remaining stock basis, the AAA account, prior C corporation earnings and;profit.;C. prior C;corporation earnings and profit, the AAA account, shareholder's remaining stock;basis.;D. the AAA;account, prior C corporation earnings and profit, shareholder's remaining stock;basis.;E. None of;these.;80. Clampett;Inc. has been an S corporation since its inception. On July 15, 2015, Clampett;Inc. distributed $50,000 to J. D. His basis in his Clampett, Inc. stock on;January 1, 2015, was $30,000. For 2015, J. D. was allocated $10,000 of ordinary;income from Clampett, Inc. and no separately stated items. What is the amount of;income J. D. recognizes related to Clampett, Inc. in 2015?;A. $60,000.;B. $50,000.;C. $20,000.;D. $10,000.;E. None of;these.;81. Clampett;Inc. has been an S corporation since its inception. On July 15, 2015, Clampett;Inc. distributed $50,000 to J. D. His basis in his Clampett, Inc. stock on;January 1, 2015, was $45,000. For 2015, J. D. was allocated $10,000 of ordinary;income from Clampett, Inc. and no separately stated items. What is the amount;of income J. D. recognizes related to Clampett, Inc. in 2015?;A. $60,000.;B. $50,000.;C. $20,000.;D. $10,000.;E. None of;these.;82. Clampett;Inc. has been an S corporation since its inception. On July 15, 2015, Clampett;Inc. distributed $50,000 to J. D. His basis in his Clampett, Inc. stock on;January 1, 2015, was $30,000. For 2015, J. D. was allocated $10,000 of ordinary;income from Clampett, Inc. and no separately stated items. What is J. D.'s;basis in his Clampett, Inc. stock after all transactions in 2015?;A. $40,000.;B. $30,000.;C. $20,000.;D. $10,000.;E. None of;these.;83. Clampett;Inc. has been an S corporation since its inception. On July 15, 2015, Clampett;Inc. distributed $50,000 to J. D. His basis in his Clampett, Inc. stock on;January 1, 2015, was $45,000. For 2015, J. D. was allocated $10,000 of ordinary;income from Clampett, Inc. and no separately stated items. What is J. D.'s;basis in his Clampett, Inc. stock after all transactions in 2015?;A. $40,000.;B. $30,000.;C. $20,000.;D. $5,000.;E. None of;these.;84. Clampett;Inc. has been an S corporation since its inception. On July 15, 2015, Clampett;Inc. distributed $50,000 to J. D. His basis in his Clampett, Inc. stock on;January 1, 2015, was $30,000. For 2015, J. D. was allocated $10,000 of ordinary;income from Clampett, Inc. and no separately stated items. How much capital;gain does J. D. recognize related to Clampett, Inc. in 2015?;A. $60,000.;B. $50,000.;C. $20,000.;D. $10,000.;E. None of;these.;85. Clampett;Inc. has been an S corporation since its inception. On July 15, 2015, Clampett;Inc. distributed $50,000 to J. D. His basis in his Clampett, Inc. stock on;January 1, 2015, was $45,000. For 2015, J. D. was allocated $10,000 of ordinary;income from Clampett, Inc. and no separately stated items. How much capital;gain does J. D. recognize related to Clampett, Inc. in 2015?;A. $60,000.;B. $50,000.;C. $20,000.;D. $10,000.;E. None of;these.;86. At the;beginning of the year, Clampett, Inc. had $100,000 in its AAA, $60,000 of;earnings and profits from prior C corporation years. During the year, Clampett;Inc. earned $50,000 of ordinary income and paid $200,000 in distributions to;its shareholders. Assume that J. D. owns 25% of Clampett, Inc., his basis in;Clampett, Inc. at the beginning of the year is $30,000, and his share of the;distribution was $50,000. How much, if any, of the distribution is taxable as a;dividend?;A. $0.;B. $10,000.;C. $12,500.;D. $15,000.;E. None of;these.;87. At the;beginning of the year, Clampett, Inc. had $100,000 in its AAA, $60,000 of;earnings and profits from prior C corporation years. During the year, Clampett;Inc. earned $50,000 of ordinary income and paid $200,000 in distributions to;its shareholders. Assume that J. D. owns 25% of Clampett, Inc., his basis in;Clampett, Inc. at the beginning of the year is $30,000, and his share of the;distribution was $50,000. What is J. D.'s basis in the Clampett, Inc. stock;after these transactions?;A. $0.;B. $5,000.;C. $12,500.;D. $15,000.;E. None of;these.;88. At the;beginning of the year, Clampett, Inc. had $100,000 in its AAA, $60,000 of;earnings and profits from prior C corporation years. During the year, Clampett;Inc. earned $50,000 of ordinary income and paid $200,000 in distributions to;its shareholders. Assume that J. D. owns 25% of Clampett, Inc., his basis in;Clampett, Inc. at the beginning of the year is $10,000, and his share of the;distribution was $50,000. How much, if any, of the distribution is taxable as a;capital gain?;A. $0.;B. $15,000.;C. $27,500.;D. $40,000.;E. None of;these.;89. At the;beginning of the year, Clampett, Inc. had $100,000 in its AAA, $60,000 of;earnings and profits from prior C corporation years. During the year, Clampett;Inc. earned $50,000 of ordinary income and paid $200,000 in distributions to;its shareholders. Assume that J. D. owns 25% of Clampett, Inc., his basis in;Clampett, Inc. at the beginning of the year is $10,000, and his share of the;distribution was $50,000. How much income does J. D. recognize this year from;these transactions?;A. $0.;B. $10,000.;C. $17,500.;D. $40,000.;E. None of;these.;90. Assume;that at the end of 2014, Clampett, Inc. (an S corporation) distributes;long-term capital gain property (fair market value of $40,000, basis of;$25,000) to each of its four equal shareholders (aggregate distribution of;$160,000). At the time of the distribution, Clampett, Inc. has no corporate;E&P and J. D. has a basis of $15,000 in his Clampett, Inc. stock. How much;income does J. D. recognize as a result of the distribution?;A. $0.;B. $15,000.;C. $25,000.;D. $40,000.;E. None of;these.;91. Assume;that at the end of 2014, Clampett, Inc. (an S corporation) distributes property;(fair market value of $40,000, basis of $5,000) to each of its four equal;shareholders (aggregate distribution of $160,000). At the time of the;distribution, Clampett, Inc. has no corporate E&P and J. D. has a basis of;$50,000 in his Clampett, Inc. stock. How much income does J. D. recognize as a;result of the distribution?;A. $0.;B. $5,000.;C. $35,000.;D. $40,000.;E. None of;these.;92. Assume;that at the end of 2014, Clampett, Inc. (an S corporation) distributes property;(fair market value of $40,000, basis of $5,000) to each of its four equal;shareholders (aggregate distribution of $160,000). At the time of the;distribution, Clampett, Inc. has no corporate E&P and J. D. has a basis of;$50,000 in his Clampett, Inc. stock. What is J. D.'s stock basis after the;distribution?;A. $45,000.;B. $50,000.;C. $85,000.;D. $90,000.;E. None of;these.;93. Clampett;Inc. converted to an S corporation on January 1, 2014. At that time, Clampett;Inc. had cash ($40,000), inventory (FMV $60,000, Basis $30,000), accounts;receivable (FMV $40,000, Basis $40,000), and equipment (FMV $60,000, Basis;$80,000). What is Clampett, Inc.'s built-in gain or loss on January 1, 2014?;A. $30,000;net built-in gain.;B. $10,000;net built-in gain.;C. $0 net;built-in gain.;D. $20,000;net built-in loss.;E. None of;these.;94. Clampett;Inc. converted to an S corporation on January 1, 2014. At that time, Clampett;Inc. had cash ($40,000), inventory (FMV $60,000, Basis $30,000), accounts;receivable (FMV $40,000, Basis $40,000), and equipment (FMV $60,000, Basis;$80,000). In 2015, Clampett, Inc. sells its entire inventory for $60,000 (Basis;$30,000). Assuming the corporate tax rate is 35%. How much built-in gains tax;does Clampett, Inc. pay in 2015?;A. $10,500.;B. $10,000.;C. $3,500.;D. $0.;E. None of;these.;95. Clampett;Inc. converted to an S corporation on January 1, 2014. At that time, Clampett;Inc. had cash ($40,000), inventory (FMV $60,000, Basis $30,000), accounts;receivable (FMV $40,000, Basis $40,000), and equipment (FMV $60,000, Basis;$80,000). In 2015, Clampett, Inc. sells its entire inventory for $60,000 (Basis;$30,000). Assuming the corporate tax rate is 35% and that Clampett, Inc. had a;$20,000 net operating loss carryover from its prior C corporation years. How;much built-in gains tax does Clampett, Inc. pay in 2015?;A. $10,500.;B. $10,000.;C. $3,500.;D. $0.;E. None of;these.;96. Clampett;Inc. converted to an S corporation on January 1, 2014. At that time, Clampett;Inc. had cash ($40,000), inventory (FMV $60,000, Basis $30,000), accounts;receivable (FMV $40,000, Basis $40,000), and equipment (FMV $60,000, Basis;$80,000). In 2015, Clampett, Inc. sells its entire inventory for $60,000 (Basis;$30,000). Assume the corporate tax rate is 35% and that Clampett Inc.'s taxable;income would have been a $50,000 loss in 2015 if it had been a C corporation.;In 2016, Clampett, Inc.'s taxable income would have been $100,000 if it had;been a C corporation. How much built-in gains tax does Clampett, Inc. pay in;2015? In 2016?;A. $10,500;in 2015, $0 in 2016.;B. $3,500 in;2015, $0 in 2016.;C. $0 in;2015, $0 in 2016.;D. $0 in;2015, $10,500 in 2016.;E. None of;these.;97. Which of;the following S corporations would be subject to the excess net passive income;tax?;A. An S;corporation that never operated as a C corporation.;B. An S;corporation that has previously distributed all earnings and profits from prior;C corporation years.;C. An S;corporation with no earnings and profits from prior C corporation years and;with passive investment income that exceeds 30% of its gross receipts.;D. An S;corporation with $2,000 of earnings and profits from prior C corporation years;and with passive investment income that equals 22% of its gross receipts.;E. None of;these.;98. Assume;that Clampett, Inc. has $200,000 of sales, $150,000 of cost of goods sold;$60,000 of interest income, and $40,000 of dividends. What is Clampett, Inc.'s;excess net passive income?;A. $0.;B. $25,000.;C. $75,000.;D. $100,000.;E. None of;these.;99. Assume;that Clampett, Inc. has $200,000 of sales, $150,000 of cost of goods sold;$60,000 of interest income, and $40,000 of dividends. Assume that Clampett;Inc. never operated as a C corporation and that the corporate tax rate is 35%.;What is Clampett, Inc.'s excess net passive income tax?;A. $0.;B. $25,000.;C. $75,000.;D. $100,000.;E. None of;these.;100. Assume that;Clampett, Inc. has $200,000 of sales, $150,000 of cost of goods sold, $60,000;of interest income, and $40,000 of dividends. Assume that Clampett, Inc. has;$1,000 of earnings and profits from prior C corporation years and that the;corporate tax rate is 35%. What is Clampett, Inc.'s excess net passive income;tax?;A. $0.;B. $8,750.;C. $26,250.;D. $35,000.;E. None of;these.;101. Which of;the following statements is correct?;A. The LIFO;recapture tax precludes an S corporation from using the LIFO method.;B. The LIFO;recapture tax is paid in five annual installments.;C. The LIFO;recapture amount increases the corporation's adjusted basis in its inventory.;D. The LIFO;recapture tax does not apply to S corporations with no earnings and profits;from prior C corporation years.;E. None of;these.;102. Which of;the following statements is correct regarding S corporation estimated taxes?;A. S;corporations never pay estimated taxes.;B. S;corporations with a federal income tax liability of $500 due to the built-in;gains tax or excess net passive income tax must pay estimated taxes.;C. S;corporations that owe $5,000 in LIFO recapture tax only must pay estimated;taxes.;D. S;corporations with a federal income tax liability of $100 due to the excess net;passive income tax must pay estimated taxes.;E. None of;these.;Essay Questions;103. Suppose SPA;Corp. was formed by Sara Inc. (a C corporation that is 100% owned by Sara) and;Sara's friend Tyson. In exchange for 50% of the stock of SPA, Sara contributed;$100,000. In exchange for the remaining 50% of the SPA stock, Tyson contributed;a building with a fair market value of $100,000 and an adjusted tax basis of;$60,000. How much gain is Tyson required to recognize on the contribution? Is;SPA eligible to elect S corporation status?;104. Jason is;one of 100 shareholders in Jace Corporation. The remaining 99 shareholders are;unrelated individual U.S. residents. During the year, Jason gave several of his;shares in Jace Corp. to his brother as a birthday present and to his best;friend Hal (unrelated to all shareholders in Jace Corp.) as a wedding present.;After these gifts, Jace Corp. has 102 shareholders. Is Jace Corp. prohibited;from electing to become an S corporation? Explain.;105. Maria, a;resident of Mexico City, Mexico, formed MZE Corp. in Mexico under Mexican law;but planned to do business in the United States. Is MZE eligible to elect S;corporation status in the United States? Explain.;106. Maria;resides in San Antonio, Texas. She formed MZE Corporation under the state laws;of Texas. Maria anticipates that she will conduct her business activities in;both Mexico and the United States. Is MZE eligible to elect S corporation;status? Explain.;107. AIRE was;initially formed as an S corporation three years ago. AIRE has four equal;shareholders Adam, Irene, Raymond, and Ethan. Raymond and Ethan would like to;terminate the S election. However, Adam and Irene are opposed to the idea. Can;Raymond and Ethan make a voluntary election to terminate the S election without;the consent of Adam and/or Irene? Explain.;108. Shea is a;100% owner of Mets Corporation (an S corporation). Mets is a calendar year;taxpayer. On February 16, 2014, Mets filed an election to terminate its S;election. Assuming Mets does not specify an effective date for the termination;what is the effective date of the termination?;109. ABC Corp.;elected t

 

Paper#38071 | Written in 18-Jul-2015

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