Reg 5D S Corporation Taxes

Question 1

S Corp

Answer 1

Domestic corporation that avoids double taxation. Flow through entities , subject to a single level of corp. Income is passed through the shareholders who reports income on their individual returns.

Question 2

S corporation requirements

Answer 2

• Must be a domestic corporation
• No more than 100 SH; All members of a family and their estates may be treated as on shareholder for this test
• only one class of stock ( voting and non voting) common is acceptable but no preferred stock

Question 3

Limitations on who can own S Corp stock

Answer 3

• Individuals citizens, residents estates, certain exemp orgs, or certain trusts

Question 4

Cannot hold stock in S corporations

Answer 4

• Partnerships
• Corps
• Non resident aliens

Question 5

Entities denied from being an S corp

Answer 5

• Bank thrift instituions

- Insurance companies

Question 6

Permitted tax year

Answer 6

• usually a calendar year

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Question 7

S corp

Answer 7

• An S corp can have a C Corporation or an S corp subsidiary

Question 8

S Corporation election

Answer 8

• You need to make an affirmative election and must satisfy all tests
• Each Shareholder who owns stock at the time consents to the election
• Can make an election retroactively

Question 9

Termination and re-election

Answer 9

• Election can be revoked only with the consent of shareholders who hold more than 50% of the number of issued and outstanding shares of stock at the time of revocation.
• Once terminated you can make another s election for another 5 years
• If you fail any eligibility tests your S election will terminate immeiately

Question 10

Termination

Answer 10

The corp for each of the three consective tax years has :

• Accumulated earnings and profit
• Derives more than 25% of its gross receipts from passive investment income

Question 11

Shareholder schedule K-1

Answer 11

• Allocates to share holders on per share per day basis
• Each shareholder includes in his taxable income his pro rata share of each item of income, loss, deduction, or credit that is separately stated by the S Corp, regardiless of whether the distribution is made to the sH

Question 12

S Corp losses ( take note of this)

Answer 12

• SH loss is limited to the shareholders stock basis in the corp
• Losses that are disallowed can be carried forward indefinitely
• The adjusted basis of a SH in an S crop is increased by any loans made by the SH to the corporation

Question 13

Possible taxes at S corporation level

Answer 13

• If an S corp was previously a C corp
• if an S corp has accum e&P from C c corp year of its tax year, hass passive income in excess of 25% if gross receipts and has taxable income at year end, the corp may pay tax on the excess net passive income

Question 14

Possible taxes at S corporation level

Answer 14

LIFO Recapture

Question 15

Shareholders basis of stock

Answer 15

• Basis increased by all income ( including tax exempt) and the excess of depletion
• Decrease basis by property distributions ( excluding dividend istribtuin)
• Decrease basis by non deductible expenses
• basis is decreased by all deductible losses and deductions

Question 16

Distributions to SH

Answer 16

• To the extent that the balance of the distributions is less than the basis of the stock, the shareholder has no gain or loss
• To the extent that the distribution exceeds the basis, that’s usually a capital gain