1. Test Corp is incorporated in State X. The law of State X requires corporations to pay state income taxes on behalf of nonresident shareholders. The law of State X does not require corporations to pay state income taxes on behalf of resident shareholders. Test Corp’s resident shareholders have the right (for example under the law of State X or pursuant to Test Corps bylaws or a binding agreement) to distributions that take into account the payments Test Corp makes on its nonresident shareholders.
Discuss the effect of the payments on behalf of the nonresident shareholders with respect to second class of stock issues.
2. What is a QSSS (or QSUB) and how is it treated for Federal tax purposes? Identify a situation where the use of a QSUB might be beneficial.
3. Norris is a Jamaican citizen who moved to the U.S. in 2018. Since that time, he has been a resident of the U.S. and has been taxed in the U.S. on his worldwide income. He continues to file tax returns in Jamaica, but intends to continue living and working in the U.S. If Norris becomes a shareholder in a U.S. S corporation, is the S corporation status at risk?
4. Greenco is an S corporaton. At the beginning of 2019, the corporation has 99 unmarried and unrelated shareholders. Duirng 2019, Tom, one of the 99 shareholders, transfers shares to his four children, his ex-spouse, his father and his grandmother. Has S corporation status been violated?
5. S corporation has two equal shareholders, C and D. Each has a binding employment agreement. The compensation paid to D is found to be excessive. The facts and circumstances do not reflect that a principal purpose of D’s employment agreement is to circumvent the one class of stock rules. Does S have more than one class of stock? Discuss.
6. Strider Corp is an S corporation providing high level consulting services and is 100% owned by Joseph Strider. He is the only employee of the corporation and provides all consulting services. In 2019, Strider Corp reported $175,000 of taxable income after a deduction for a salary to Joseph Strider of $25,000. Strider also reported $140,000 of distributions for 2019. The distributions did not exceed Josephs’ stock basis.
Discuss with respect to self employment tax issues, including what the IRS position might be. Would the discussion be different if Strider Corp was an LLC?
7. In addition to the facts at number 6, assume that Joseph Strider is married and that he and his wife have no other sources of income, i.e. their income before any deductions is the $25,000 of wages plus the $175,000 of S corporation income for a total of $200,000. How would section 199A affect the Striders 2019 return?
8. Three S corporations are formed, each with 42 unrelated shareholders. The three S corporations then form a partnership to conduct an operating business. Each S corporation is a 1/3 partner in the partnership and has no activity other than the holding of the partnership interests. Any concerns regarding S corporation status? Why or why not?
9. Altitude Corp is an S corporation with a fiscal year ending July 31. Gail, the sole shareholder, reports on a calendar year. On December 1,2019, the S coporation election is terminated. On that date, the only pass throught item is ordinary income of $15,000. For the remainder of the fiscal year, the corporation recognized ordinary income of $50,000; accordingly, net income for the full year is $65,000.
Does the S corporation have any choices in how the income is allocated? If so, what are they and how much income will be allocated? When is the corporate return due? Also—in what calendar year will Gail be taxed on the income?
10. Corporation XYZ is a former C corp. It has a net unrealized built in gain of $125,000. It also has a net operating loss carryforward from its C corporation years of $25,000. In the first tax year as an S corporation, XYZ has taxable income of $100,000 and a recognized built in gain of $75,000. Can XYZ utilize any of the C corporation n.o.l. carryforward?
11. An S corporation filed its S election on February 1, 2020, and is an S corporation retroactively as of January 1, 2020. On what date does the Built in Gain recognition period begin? On what date does it end? How longs is its built in gains recognition period?
12. Shareholder A has stock basis of $50,000 and debt basis of $100,000 in an S corporation at 12/31/18, before consideration of the 2018 operating results. Shareholder A actively participates in the operations of the S corporation. The company incurs a $125,000 ordinary loss during 2018, all of which is allocable to A. There was no income or loss in 2019, but the corporation repaid the $100,000 loan owed to Shareholder A during the 2019 tax year. What are the tax consequences of the loan repayment assuming the loan was in the form of a properly structured note?
13. Identify the corporate tax returns required by an S termination year and briefly discuss the significance of the post-termination transition period
14. Couldbe is an S corporation reporting on a calendar year. The corporation was formerly a C corporation and has accumulated earnings and profits from prior C years. In 2019, the corporation realized the following income items:
Gross receipts from operations $ 110,000
Tax exempt interest income 120,000
Expenses directly connected with tax exempt 0
Operating expenses 40,000
Is Couldbe subject to the tax on excess net passive income?
If so, what is the amount on which the tax would be calculated?
15. Reptie Co was a C corporation that elected S status on 1/1/19. At that date, the balance sheet was as follows:
cash $15,000 $15,000
Asset A $200,000 $ 80,000
Asset B $ 60,000 $ 92,000
Totals $275,000 $187,000
On June 30, 2019, Asset A was sold for $240,000. No other assets were sold during the year and taxable income for the year, including the gain on the sale of asset A was $170,000. Is Reptie subject to the built in gains tax? If so, on what amount is the built in gain tax calculated and how much is the tax?
16. The Platinum Company was a C corporation that had used the LIFO method of accounting for inventory. At 1/1/19, The Silver Company became an S corporation. The 12/31/18 LIFO reserve amount is $1,000,000. Discuss related issues with respect to the final C return and subsequent S corporation returns.
17. Will is the sole shareholder of an S corporation. He has a basis of $60,000 at the beginning of the current tax year. The corporation has nonseparately stated income of $20,000 during the year and makes a distribution to Will of $90,000 on July 1. The corporation has no E&P and has never been a C corporation. What is Will’s ending basis and what is the status of the distribution made to Will?
18. Same facts as #17, except that the S corporation had previously been a C corporation and, in addition to the balances detailed in #16, also had $14,000 of accumulated earnings and profits and AAA equal to $30,000 at the beginning of the current tax year. Ending basis and status of distributions please.
19. Discuss the reasoning behind the implementation of the built in gains tax, i.e. why is there a built in gains tax?
20. Discuss the reasoning behind the implementation of new section 199A, and briefly address its requirements.