REG 5 - S Corporations Flashcards

1
Q

What are the three types of tax-free property contributions to a S corp that are treated as tax-free? (Like C corp)

A

1) A contribution of property (NBV)
2) Solely in exchange for stock (no boot); AND
3) After the transfer, the shareholder (or group) of shareholders control 80% stock ownership

  • Services contributed are taxable at FMV
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2
Q

Define the criteria to be an eligible shareholder in a S corp?

A
  • Must be a USA individual, estate, or certain types of trusts
  • Individual may NOT be a nonresident alien
  • Neither corporations NOR partnerships are eligible shareholders
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3
Q

What is the limit to the amount of shareholders an S corp may have? What type of stock is allowed?

A
  • An S corp can only have up to 100 shareholders (husband and wife is counted as one). Only class of stock applicable is common stock.
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4
Q

What is the criteria for electing S corporation status?

A
  • All shareholders must consent to valid election with Form 2553.
  • Election must be taken by March 15th of the next year for current year’s calendar year (e.g. you can be an S corp if you do election by March 15 of next year
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5
Q

Is there consent needed to admit a new shareholder?

A

The consent of a new shareholder is not required.

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6
Q

What is the the general rule for calendar year of S corp? When is the due date?

A

The general rule is that December 31 is the required year-end.

Due date of return is March 15

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7
Q

Does an S corp pay tax? What are the three exemptions?

A

An S corp does not pay tax.

1) LIFO recapture tax
2) Built-in gains tax
3) Tax on passive investment income

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8
Q

Define built-in gains tax?

A
  • Tax on S corp if both the two conditions occur:
    1) A C corporation in prior years elects S corporation status
    2) FMV > Basis
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9
Q

What are the exemptions to not paying built-in gains tax?

A

Exemptions from recognition of gain (no built-in gain tax) if any ONE occurs

1) The S corporation was NEVER a C corporation
2) The sale or transfer does NOT occur within 10 years of the first day that the S election was made.
3) The S corporation can demonstrate that appreciation (FMV > Basis) occurred after the S election

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10
Q

What is the calculation of S corporation tax?

A

Multiplying 35% (the highest corporate tax rate) by the lesser of:

1) Recognized built-in gain for the current year

OR

2) The taxable income of the S corporation if it were a C corporation

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11
Q

Define the tax on passive investment income?

A
  • S corporation is taxed at 35% (highest corporate rate) on net income or excessive passive investment income if the following TWO tests are met:
    1) S corporation has accumulated C corp earnings and profits from prior years

AND

2) Passive income exceeds 25% of gross receipts

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12
Q

How are allocations of gains to shareholder made?

A

Per-share, per-day basis

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