Ch 11 Part 4

Question 0

Built in gains tax

Answer 0

Applicable to net recognized built in gain of S corp that

Formerly was a C corp

Question 1

Taxation of income to S corporation (unlike with a partnership)
3 taxes

Answer 1

1 Built in gains tax
2 excess net passive income tax
3 LIFO recapture tax

Question 2

Excess net passive income tax

Answer 2

Applicable to S corps that have Subchapter C E&P at year end

And that earn passive income exceeding 25% of gross
Receipts during tax year

Question 3

LIFO recapture tax

Answer 3

Imposed when a C corp uses the LIFO inventory method in

It’s final C corp tax year and makes S election

Question 4

Allocation of income to shareholders

Answer 4

Income and gains are allocated based on number of shares of

Stock owned by each shareholder on each day of tax year

Question 5

Allocation to shareholders: termination of S election or termination of shareholder’s interest in S corp during tax year requires tax year to be…

Answer 5

Divided into 2 parts

Question 6

S corp can elect to allocate income or gain according to which 2 methods?

Answer 6

1 general rule
Or
2 accounting methods used by corporation

Question 7

Shareholder Distributions: Income and gain allocated to shareholder will…

Answer 7

Increase the basis in S corp stock

Question 8

Shareholder distributions: any S corp that does not have an E&P bslance, what is non taxable? Under what circumstances?

Answer 8

Amount of money + FMV of noncash property distributed is
Nontaxable

Provided its doesn’t exceed shareholder’s stock basis
Determined before negative adjustments

Question 9

Tax consequences of corporation distributing noncash property?

Answer 9

Corporation recognizes gain but not loss when it distributes
noncash property

Gain passes through to shareholders

Question 10

What happens if the S corporation made an S election after 1982
And has accumulated E&P?

Answer 10

2 earnings tiers must be maintained: AAA and Acc. E&P

Question 11

What order do distributions come from tiers, when S corp has E&P?

Answer 11

Distributions come from each tier in succeeding order until

Tier is exhausted

Question 12

Distributions out of E&P are taxable to S corp shareholders as?

Answer 12

Dividends

Question 13

Other tier distributions (other than E&P) what are the tax consequences?

Answer 13

Nontaxable

unless stock basis is reduced to $0, then shareholder recognizes
Capital gain

Question 14

Section 267 related party transaction rules

Answer 14

Deny a payor a deduction for an expense paid to a related
Payee when mismatching of expense and income items occurs

Because both use different accounting methods (one uses
Accrual, the other cash)

Question 15

Any loss disallowed to seller on related party sale can…

Answer 15

Offset Gains realized by purchaser on subsequent sale

Question 16

2% shareholder, 3 things

Answer 16

Shareholders that own less than 2% of S corp can recieve
Fringe benefits tax free

Those that own over 2% pay taxes

Benefits are deductible by corporation

Question 17

Fringe benefits limited by more than 2% rule

Answer 17

1 group life insurance premiums
2 accident and health insurance premiums
3 meals and lodging
4 cafeteria plans
5 injuries and sickness
6 educational assistance program
7 dependent care benefits