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Tax 311 Problem Set #4

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Question;Tax;311;Problem Set #4;Subchapter;S Corporations;I. A. P;Corporation is a calendar year corporation owned by three individuals Adams;Baker and Chris. It has been in;existence since 1999. On February 4, 2012;the three shareholders consent to an election on the part of the corporation to;be taxed pursuant to Subchapter S. What;is the effective date of the election and when does P?s status change from a;?C? Corp to an ?S? Corp?;1. Would your answer to part (A) be different if;the election is made and consented to on April 4, 2012?;2. If Adams and Baker, but not Chris, consented;to a revocation of the Sub S election on June 8, 2014, what is the effective;date of the revocation?;3. If Adams sold one share of stock to a;non-resident alien individual on October 4, 2014, when would P Corporation;cease to be a Subchapter S corporation?;B. P;Corporation is a calendar year corporation owned by three individuals Adams;Baker and Chris. It was formed on November;18, 2013. If the three shareholders;consent to an election to be taxed as an S corporation on December 1, 2013 what;is the effective date of that election?;1. What would be the effective date of the;election if the shareholders consented to the election on January 28, 2014?;II. XYZ Corporation has elected to be taxed;as a Subchapter S corporation. Joe Smith;owned 100% of the corporation until February 28, 2013. On that date he sold 30% of his stock to;Brian Bond. On June 30, 2013 he sold;another 20% of his stock to Brian. For;the calendar year 2013 its net book income is equal to $128,000. The following items were included in arriving;at this figure;Federal Income tax $;22,000;Long-term Capital gains 20,000;Short-term Capital;losses 12,000;Charitable Contributions 6,000;Dividend Income 1,000;Tax exempt Municipal;bond interest 13,000;What;is XYZ?s taxable income for the year 2013 and what is Joe?s share of that;income as well as the separately stated items of the corporation?;III.;Electing Corp. was organized as a C;corporation on June 12, 1995. On January;7, 2012, it filed an election to be taxed as a Subchapter S corporation. At the time of its formation, Green acquired;his stock in exchange for $3,000. On;March 3, 2000 he sold 50% of his stock to Black for $25,000. During the period June 12, 1995 through;December 31, 2011 Electing Corp accumulated $18,500 of earnings and;profits. Electing Corp distributed;$7,500 to both Green and Black on 12/31/13 and $10,000 to both of them on;12/31/14. For the years ending 2012;through 2014 it had the following items of income and loss;2002 2003 2004;Income;from operations $13,000 $6,000 $18,000;Long-term;Capital loss;0 4,000 2,000;Tax-exempt;bond interest 3,000 3,000 3,000;A. What;are Green?s and Black?s basis in their Electing Corp stock as of 12/31/13;prior to considering the 2013 distribution?;B. What;is the balance in the corporation?s accumulated adjustment account as of 12/31/13;prior to considering the 2013 distribution?;C.;What is the amount and;character of the 2013 distributions?;D. What;are Green?s and Black?s basis in their Electing Corp stock as of 12/31/14;prior to considering the 2014 distribution?;E. What;is the balance in the corporation?s accumulated adjustment account as of 12/31/14;prior to considering the 2014 distribution?;F.;What is the amount and;character of the 2014 distributions?;IV. Young Corp, a corporation that had been;in existence since 2004, elected Subchapter S status on January 2, 2012. At the time of its election it had two;assets. Asset #1 had been acquired in;2009 and had an adjusted basis of $600,000 and a FMV at the time of the Sub S;election equal to $1,100,000. Asset #2;had been acquired in 2009 and had an adjusted basis equal to $450,000 and a FMV;of $350,000 at the time of the Sub S election.;If Young Corp were to sell Asset #1 on March 3, 2014 for $1,300,000;what are the consequences to Young Corp and its sole shareholder Smith?

 

Paper#38474 | Written in 18-Jul-2015

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