R5 - Flow-Through Entity Taxation and Multi-jurisdictional Tax Issues

Question 1

What is the order in which you calculate basis of a SH in an S Corp?

Answer 1

Initial Contributions
(+) Income items
(+) Additional Contributions
(-) Distributions
(-) Losses/deduction items
(=) Ending Basis

Question 2

What is AAA?

Answer 2

Accumulated Adjustments Account = Equivalent to E&P but for S Corps.

Question 3

What items increase AAA?

Answer 3

1. Ordinary business income.

2. Separately stated income and gains.

Question 4

What items decrease AAA?

Answer 4

Remember; AAA can’t be zero.

1. Ordinary business losses.
2. Separately stated losses and deductions.
3. Nondeductible Expenses.
4. Distributions.

Question 5

What is OAA?

Answer 5

Other Adjustments Accounts = Items that affect basis, but not AAA, such as:

1. Tax-exempt interest.
2. Tax-exempt life insurance proceeds and nondeductible premiums.
3. Federal taxes paid or accrued when S corp was C corp.

Question 6

What happens to the S Corp when it liquidates?

Answer 6

S corp recognizes gain or loss on assets distributed as if they were sold at FMV.

Question 7

What happens to the S Corp shareholders when ithe S Corp liquidates?

Answer 7

Cash Received
(+) FMV of Property Received
(-) Liabilities Assumed
(=) Amount Realized

Amount Realized
(-) Basis in Stock
(=) Taxable Gain (Loss)

Question 8

What are the income items that increase a partner’s basis?

Answer 8

1. Ordinary business income.
2. Separately stated income and gains.
3. Additional contributions.
4. Increase in partnership debt.

Question 9

What is the state apportionment formula?

Answer 9

(Payroll ratio + Avg Property ratio + Sales ratio) / 3

*For the property ratio It is NOT the ending balance for the ratios. It is always the average.