. A. P Corporation is a calendar year corporation owned by three individuals Ada
ID: 2601360 • Letter: #
Question
. 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 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:
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 2003 distribution?
B. What is the balance in the corporation’s accumulated adjustment account as of 12/31/13, prior to considering the 2003 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 Subchapter 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 Subchapter S election. If Young Corp were to sell Asset #1 on March 3, 2014 for $1,300,000, what are the consequences to Young Corp and its sole shareholder Smith?
Explanation / Answer
A. Effective date will be from the first day of tax year that is 1st january 2012.
1. if election is made after 15th day of 3rd month of calender year then effective date will be next tax year that is 1st january 2013.
2. if all the shareholders consent is not given through out the election time then the status is revoked from that date that is 14th june 2014.
3. in S CORP all the shareholderss should be US citizens and Resident Allience generally individuals .hence P CORP status is changed to C corp when a non resident allien is admited.
B. Effective date will be 1st january 2014. because within 75 days of incorporation election was held.
1. effective date is 1st january 2014 as per the rules . that is with in 75 days and before 15 day of 3rd month of tax year.
2. taxable income : long term gain, divident , exempted bonds are not to be taxed in the income of corporation. therefore income of corp is 1000000$. share is 50% which is 50000$
IV. the asset gains will be taxed in the hands of shareholder and not in the hands of corp.
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