Question 1:
Money, Inc., a calendar year S corporation in Denton, Texas, has two unrelated shareholders, each owning 50% of the stock. Each shareholder has a $400,000 stock basis as of January 1, 2012. At the beginning of 2012, Money has an AAA of $300,000 and AEP of $600,000. During 2012, Money has an operating income of $100,000. At the end of the year, Money distributes securities worth $1,000,000, with an adjusted basis of $800,000.
1. At the end of the year, before the distribution, each shareholder's basis is $.... ...? how much?
2. After the distribution, each shareholder's basis is $.....? how much?
3. Each shareholder has $....? of dividend income.
Question 2:
At the beginning of 2011, Christine Wheat has a basis of $5,000 in her stock of a calendar year S corporation, Zhou, Inc. She holds no debt of the S corporation. During 2011, Wheat's total share of Zhou's losses and deductions is $16,000, consisting of $10,000 of ordinary loss and $6,000 of nondeductible, noncapital expenses. For 2012, Wheat's share of Zhou's ordinary income is $12,000. Assuming no Reg. § 1.1367-1(g) election, how are these facts treated by Christine Wheat?
If an amount is zero, enter "0".
In 2011, Wheat can use $.....? of the $6,000 nondeductible, noncapital expenses and carry over $.....? to 2012.
In 2011, Wheat can use $.....? of the $10,000 ordinary loss and carry over $.....? to 2012.
At the beginning of 2012, Wheat's basis in the stock is $.....? Wheat can use $.....? of the carryover amount from 2011 in 2012 to offset the $12,000 2012 income.
Question 3:
Jeff, a 52% owner of an S corporation, has a stock basis of zero at the beginning of the year. Jeff's basis in a $10,000 loan made to the corporation and evidenced by a corporate note has been reduced to zero by pass-through losses. During the year, his net share of the corporate taxable income is $11,000. At the end of the year, Jeff receives a $15,000 distribution.
What are the tax effects of the distribution?
There is $.....? nontaxable income and a $.....?capital gain on the distribution.
Question 4:
At the beginning of the year, Ann and Becky own equally all of the stock of Whitman, Inc., an S corporation. Whitman generates a $120,000 loss for the year (not a leap year). On the 189th day of the year, Ann sells her half of the Whitman stock to her son, Scott.
The loss allocated to Scott is $..... ?
(In your computations, round any fractions to four decimal places. Then round the final answer to the nearest dollar.)
Question 5:
Rodeo, Inc., a cash basis S corporation in College Station, Texas, formerly was a C corporation. Rodeo records the following assets and liabilities on January 1, 2012, the date the S election is made.
Adjusted Basis Fair Market Value
Cash $200,000 $200,000
Accounts receivable 0 105,000
Equipment 110,000 100,000
Land 1,800,000 2,500,000
Accounts payable 0 110,000
During 2012, Rodeo collects the accounts receivable and pays the accounts payable. The land is sold for $3,000,000, and taxable income for the year is $590,000.
a. Rodeo's net unrealized built-in gain on the conversion date is $......?
b. Rodeo's built-in gains tax is $.....?
Question 6:
Emeline, Inc., of Auburn, Alabama, is an accrual basis S corporation with three equal shareholders. The three cash basis shareholders have the following stock bases at the beginning of the year: Andre, $12,000; Crum, $22,000; and Barbara, $31,000. Emeline reports the following income and expense items:
Operating loss ($30,000)
Short-term capital gain 37,500
Long-term capital loss (6,000)
Nondeductible fees and penalties (3,000)
Emeline distributes $6,000 of cash to each of the shareholders during the tax year.
a. The stock basis at the end of the year for Andre is $.....?
b. for Crum is $.....?
c. and for Barbara is $.....