Tax Return Assignment: S Corporation
Instructions:
Complete the required federal corporation income tax return forms for Modern Day Clothing, Inc. for the 2012 tax year, unless instructed otherwise, based upon the facts presented below. Also, if required information is missing, use reasonable assumptions to fill in the gaps. Ignore any Alternative Minimum Tax(AMT) calculations or reporting.
Modern Day Clothing, Inc.(MD) is organized as a corporation in the state of North Carolina and is taxed as an "S" corporation with a calendar year-end. MD operates four small boutique clothing outlet stores (family clothing stores) in the cities of Charlotte, Durham, Raleigh and Winston-Salem North Carolina. MD's address, employer identification number, date of incorporation, and effective date of its S corporation election areas follows:
Modern Day Clothing, Inc.
1515 North Lincoln Highway
Charlotte, North Carolina 28201
EIN- 14-2953556
Date Incorporated- February 2, 1996
Effective date of the S election was July 1, Prior year (PY).
MD has been at the same address since inception.
MD has only common shares issued. There are currently 10,000 shares of MD common stock outstanding and issued. There were no stock transfers during the current tax year.
MD is owned by the following four shareholders as follows:
Jennifer Lyons
85 Shady Elm
Charlotte, North Carolina, 28201
SSN 524-31-3493
Number of common shares owned 4,300
Robert Newberry
RD Route 843
Rural Hall, North Carolina 27045
SSN 482-26-5241
Number of common shares owned 2,300
Lamar Taylor
35 S. Main Street
Mt. Airy, North Carolina 27030
SSN 545-16-4239
Number of common shares owned 2,200
Lacrecia Williams
9851 Old Colonial Highway
Charlotte, North Carolina, 28201
SSN 429-82-9384
Number of common shares owned 1,200
In addition, MD reported the following information for the current year:
• MD uses the accrual method of accounting.
• MD is not a subsidiary nor is it in an affiliated group with any other entity.
• MD does not own directly or indirectly 20% or more of any other entity (including corporations or partnerships).
• MD has never issued any restrictive stock
• MD has never been required to file an IRS Form 8918
• MD has never issued any publicly traded debt
• MD was taxed as a C corporation from inception through the effective date of the S election.
• MD had net unrecognized built-in gain from prior years of $400,000 as of January 1 of the current year. The entire gain was attributable to unimproved land that MD owned. The land was originally purchased for $250,000 on June 16, 1997. On August 1 of the current year, MD sold the unimproved land for a sales price of $850,000 (net of selling commissions).MD did not receive a Form 1099-B reflecting the sale. The land was held by MD as an investment asset only and was not connected with its clothing business.
• MD has accumulated earnings and profits as of the end of the current tax year of $500,000.
• MD has an Accumulated Adjustments Account balance at 12/31/PY of $125,000.
• MD has an Other Adjustments account balance at 12/31/PY of $7,000.
• MD did not have any non-shareholder debt that was cancelled or was forgiven nor had the terms modified so as to reduce the principal amount of the debt during the current tax year.
• MD has never made nor caused to be made a qualified subchapter S subsidiary election (Qsub).
• MD has never caused a Qsub election to be revoked or terminated.
• MD did make payments in the current year that required the filing of IRS forms 1099. All of those 1099s were filed timely.
Additional information:
None of the expenses incurred by MD during the current year relate to the production of or the carrying of the tax-exempt securities held in portfolio. The tax-exempt securities are maintained in a separate brokerage account distinct from other holdings.
MD maintains it inventory on the cost method. MD has never has never changed it inventory method. MD uses specific identification for its inventory. MD has never written down any subnormal goods. The rules of Section 263A (UNICAP) do not apply to MD.
MD leases all of its real property.
On December 1 of the current year, MDmade a distribution to all common stockholders of $85 per common share owned as of that date.
On July 1 of the current year, MD purchased $640,000 of retail trade property (5-year MACRS property) that it used to expand its Charlotte store. Not including the $640,000 of new year additions, MD's calculated tax depreciation for the current year is $275,000. MD desires to recover the $640,000 of equipment additions over the shortest recovery period possible.
Book depreciation (including all assets) for the current year was $180,000.
Other than the unimproved land, MD did not dispose of any assets during the year.
MD maintains a life insurance policy on the life of the CEO, Jennifer Lyons. MD is the beneficiary of that policy.
During the current year, MD gave $25,000 in cash to the Red Cross to assist with hurricane disaster clean-up in the North Carolina area.
All of the accrued wage amounts on the balance sheet as of December 31, CY were paid on January 15 of next year.
The accrued bonus amounts on the balance sheets as of December 31, PY and CY respectively were paid on July 1, CY and July 1 of next year,CY respectively.
As of December 31, PY and CY, respectively, MD had accrued vacation accruals on its books of $19,000 and $21,000. As of March 15, CY and March 15 of next year, respectively, MD had paid $3,000 and $9,000 of those accrued amounts. None of these accrued amounts relate to officers'compensation.
MD paid $140,000 ($35,000 each on 4/15/CY, 6/15/CY, 9/15/CY and 12/15/CY) to the U.S. Treasury related to the current year federal taxes and $20,000 to the state of North Carolina related to the current year state income taxes.
Attachment:- Tax-Assignment-Modern-Day-Clothing.rar