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Exam 22: S Corporations

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Question 31

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

A) True
B) False

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Question 32

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The Section 179 expense deduction is a Schedule K item on the Form 1120S.

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B) False

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Question 33

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

An S shareholder's stock basis can be reduced below zero.

An S corporation's separately stated items generally are identical to those separately stated by _________________________.

An S corporation is subject to the following tax(es) .

Identify a disadvantage of being an S corporation.

Which of the following items, if any, decreases an S corporation's AAA?

Oxen Corporation incurs the following transactions. $\begin{array}{lr}\text { Net income from operations } & \$ 100,000 \\\text { Interest income from savings account } & 3,000 \\\text { Long-term capital gain from sale of securities } & 10,000 \\\text { Short-term capital loss from sale of securities } & 4,000\end{array}$ Oxen maintains a valid S election and does not distribute any assets (cash or property) to its sole shareholder, Megan. As a result, Megan must recognize (ignore 20% QBI deduction) :

A distribution from the other adjustment account (OAA) is not taxable to an S shareholder.

Nonseparately computed loss (increases, reduces) a S shareholder's stock basis.

The maximum number of actual shareholders in an S corporation is:

An S shareholder's stock basis is reduced by flow-through losses before accounting for distributions.

A corporation may alternate between S corporation and C corporation status each year depending on which results in more tax savings.

The passive investment income of an S corporation includes net capital gains from the sale of stocks and securities.

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

An estate may be a shareholder of an S corporation.

Shareholders owning a(n) of shares (voting and nonvoting) may ____________________ revoke an S election.

Amit, Inc., an S corporation, holds an AAA balance of $614,000 at the beginning of the tax year. During the year, the following items occur. $\begin{array} { l r } \text { Operating income } & \$ 501,000 \\\text { Interest income } & 6,500 \\\text { Dividend income } & 13,020 \\\text { Municipal bond interest income } & 6,000 \\\text { Long-term capital loss from sale of investment land } & 7,400 \\\text { Section 179 depreciation deduction } & 6,000 \\\text { Charitable contributions } & 19,000 \\\text { Cash distributions } & 57,000\end{array}$ Amit's ending AAA balance is:

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