09/09/2022 S CORP

Question 1

Who can be a sharreholder of an S corp?

Answer 1

Individuals
Estates
Certain trusts

Question 2

In order to be eligible to be classified as an S corporation, the following conditions must be met

Answer 2

Only one class of stock (there may be both voting and nonvoting as long as they are of the same class), and the rights to profits, and assets on liquidation must be identical,

The number of shareholders must not exceed 100 (family members are treated as one shareholder),

A nonresident alien cannot own shares,

Each shareholder must be either an individual, an estate or a qualified trust (partnerships and C corporations may NOT be a shareholder of an S corporation), and

The corporation must be a domestic corporation and not be a financial institution or insurance company.

Question 3

A distribution to a shareholder in an S corporation is a

Answer 3

Return of capital up to the shareholders basis

Treated as gain from the sale or exchange of property on the Excess of the basis

Question 4

All of the following events would cause an S Corporation to cease qualifying as an S corporation

Answer 4

An election terminates automatically in any of the following cases.

1-The corporation is no longer a small business corporation. A small business corporation:
Has no more than 100 shareholders
All shareholders are individuals, estates, exempt organizations, or
certain trusts. (not partnerships or corporations)
Has no nonresident alien shareholders
Has only one class of stock

2-The corporation, for each of three consecutive tax years, (a) has accumulated earnings and profits and (b) derives more than 25% of its gross receipts from passive investment income as defined in section 1362(d)(3)(C).

3-The election is revoked. An election can be revoked only with the consent of shareholders who, at the time the revocation is made, hold more than 50% of the number of issued and outstanding shares of stock.

Question 5

S corporation shareholders can NOT be

Answer 5

Partnerships nor Corporations

Question 6

On S corps shareholder basis is Increased by the total of: SNT

Answer 6

Separately stated Items of income (including tax-exempt)
Non-separately computed income
The excess of the deductions for depletion over the basis of the property

Question 7

On S corps shareholder basis is Decrease by the total of: DSNAT

Answer 7

Distributions by the corporation not includible in the income of the shareholder
Separately stated loss Items
Non-separately computed loss
Any expense of the corporation not deductible in computing its taxable income and not properly chargeable to capital account
The shareholder’s deduction for depletion for any oil and gas property held by the S corporation

Question 8

On S corp shareholder basis start by:

Answer 8

initial capital contribution or the initial cost of the stock purchased.
Income items increase the basis and
losses, deductions and distributions all decrease the stock basis

Question 9

Separately state Items examples:

Answer 9

Net rental real estate income (loss)
Other net rental income (loss)
Interest income (loss)
Ordinary and qualified dividends
Royalties
Capital gains and losses (LTCG, STCG, 1250, and 1231)
Collectibles (28%) gains (loss)
Section 179 deduction
Foreign transactions
AMT items
Items affecting shareholder basis (including drilling costs)
Charitable contributions
Credits

Question 10

Requirement to file as an S corp

Answer 10

Be a domestic corporation
Have only allowable shareholders ( individuals, certain trust, and estates and may not include partnerships, corporations or non-resident alien shareholders)
No more than 100 shareholders
One class of stocks
Not be an ineligible corporation i.e. certain financial institutions, insurance companies, and domestic international sales corporations.

Question 11

S corp generally make estimate tax for the following taxes:

Answer 11

Built-in gains
Excess net passive income tax
Investment credit recapture

This usually happens when Scorp was a Ccorp

Question 12

The basis adjusts annually on the last day of the S corporation year in the following order:

Answer 12

Increased for income items and excess depreciation, then
Decreased by distributions, then
Decreased by non-deductible, non-capital expenses and depletion, then
Decreased by deduction and loss items.

Question 13

Separately Stated Items

Answer 13

Not included in Ordinary Income

Question 14

Unless otherwise elected, distributions occur in the following order:

Answer 14

Reduce AAA
Reduce shareholders’ PTI account (previously taxed income)
Reduce accumulated E&P
Reduce OAA
Reduce any remaining shareholders’ equity accounts

Question 15

Which of the following correctly identifies Schedule M-2?

Answer 15

Analysis of Unappropriated Retained Earnings per Books (C corporation) –This reflects the amount available for shareholders as dividends.
Analysis of Accumulated Adjustments Account, Other Adjustments Account, and Shareholders’ Undistributed Taxable Income Previously Taxed (S Corporation) – These accounts influence the taxation of distributions to shareholders.

Question 16

Excess Net Passive Income Tax

Answer 16

if has acc earnings and profits and
has passive investment income in excess of 25% of gross profits and
has taxable income at the end of the tax year

Question 17

what increases the accumulated adjustments account of an S corporation

Answer 17

Interest and dividends increase the accumulated adjustments account (AAA) of an S corporation.

Question 18

When S corp was a C corp before and has balance on E&P acct. In what order must be distributed:

Answer 18

1-Reduce AAA
2-Reduce shareholders’ PTI account (previously taxed income)
3-Reduce accumulated E&P
4-Reduce OAA
5-Reduce any remaining shareholders’ equity accounts

Question 19

A partner’s basis in a partnership interest includes the partner’s share of a partnership liability if the liability:

Answer 19

Creates or increases the partnership’s basis in any of its assets,
Gives rise to a current deduction to the partnership, or
Is nondeductible, noncapital expense of the business.