Question Problem 12-48 Passive Investment Income Tax (LO. 10) Flint, an S corpor

Question

Question Problem 12-48 Passive Investment Income Tax (LO. 10) Flint, an S corporation with substantial AEP, reports operating revenues of $400,000, taxable interest income of $200,000, operating expenses of $175,000, and deductions attributable to the interest of $10,000. Calculate any excess passive investment income(ENPI) and the associated penalty tax payable. Round any division to four decimal places and use in subsequent calculations. Round your final answers to the nearest dollar. ENPI: $_____ § 1375 penalty tax : $ _____

Explanation / Answer

S Corporation passive investment income tax would be $16,625 ($47,500×35%).

ENPI=$47,500

Penalty Tax=$16,625

Passive investment income includes gross receits from dividends, rent, annuity etc. The passive investment income of S Corporation is $200,000 Total gross receipts of the company are as under: Operating revenues $400,000 Interest income $200,000 Total gross receipts $600,000 Excess net passive income is the excess of pasive investment income than 25% of the gross receipts. [$200,000-(25% of $600,000)] Net passive income= Interest income-deduction attributatble to interest                                          '= $200,000-$10,000                                         '=$190,000 ENPI=(Passive investment income in excess of 25% of gross receipts/Passive investment of the year)×Net passive investment income of the year ENPI={[$200,000-(25% of $600,000)]/$200,000}×$190,000           '=[($50,000/$200,000)×$190,000]           '=$47,500 Tax on passive investment income would be $16,625.

S Corporation passive investment income tax would be $16,625 ($47,500×35%).

ENPI=$47,500

Penalty Tax=$16,625

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