Income Tax -Eta2 S Corporations

Front 1

How does one form a s corp

Back 1

form 2553, election by a small business corporation. It must be filed within 2.5 months after the START of its tax year to be effective at beginning year. If not filed then it will be effective the following tax year

Front 2

Will irs accept a late filing for s corp

Back 2

yes if within 6 months of due date and reasonable cause

Front 3

what are s corp requirements

Back 3

100 s/hs or less, domestic, no aliens s/hs, one class of stock, profits based on interest, s/hs give written consent
related persons =one s/h

Front 4

Can a s corp not file a tax return if no income

Back 4

no

Front 5

When must an s corp file electronically

Back 5

$10 million or 250 returns

Front 6

How are estimated tax returns and filing extensions treated for s corp

Back 6

same as c

Front 7

When does an S election terminate

Back 7

corp does not qualify
has accumulated earnings and profits and derives 25% of gross from passive income for each of 3 consecutive years majority,
s/hs revoke election

Front 8

What is the effective day of a s corp revocation

Back 8

specified date, start of tax year if revocation is timely filed, If not timely filed, start of next tax year

Front 9

When does a s corporation pay taxes

Back 9

excess net passive investment income, built in gains, investment credit recapture and LIFO recapture None of which are deductible

Front 10

When must s corp pay excess net passive income tax and how much is it

Back 10

If passive investment income exceeds 25% of gross income, must pay 35% net passive income tax

Front 11

What is the built in gains BIG tax and how does it apply

Back 11

Applies to corps that after 1986 elected s corp after 1986 and only affects property dispositions during the 5 year period beginning on the date the asset was acquired by the s corp. Any appreciation of the asset after conversion is not subject to built in gains tax. Gain taxed at highest rate.

Front 12

What is the investment credit recapture

Back 12

when a c corp has an investment credit and then converts to s , the credit may have to be recaptured by the s corp same for lifo recapture

Front 13

How are the annual decreases and increases to s corp s/h basis made

Back 13

Dic down low n deep
Increased for income items and excess depletion
decreased for distributions
decreased for nondeductible, noncapital expenses and depletion
decreased for items of loss and deductions

Front 14

How are distributions that exceed the s/h stock basis treated

Back 14

capital gains reported on sch d

Front 15

How is appreciated property distributed to a s corp s/h treated

Back 15

as a sale to the s/h. If gain, s corp would recognize and pass through the gain to the shareholders and increase the basis of their stock. No loss is recognized if the FMV of the distributed property is less than the s corp basis

Front 16

What is the limit of the amount of loss that a s corp s/h can deduct

Back 16

limited to at risk basis

Front 17

How does tp calculate allowable loss and nondeductible items if these items exceed tp basis

Back 17

multiply basis before loss and nondeductible by prorated amount of
item of loss / total items of loss and deductible =portion of basis as ordinary loss
nonded / total items of loss and non ded

Front 18

What happens to losses and deduction not allowable in the current year due to basis limitations

Back 18

loss is Suspended and carried forwarded indefinitely. However NONDEDUCTIBLE expenses that exceed basis DO NOT get carried forward

Front 19

What happens to suspended losses if s corp stock is sold

Back 19

they are lost

Front 20

What happens to current year allowable losses when not used in current year

Back 20

combined with the suspended losses and deductibles carried over from the prior year but should be separately tracked

Front 21

What rules apply to s/h who does not materially participates or to s corp that has rental activity

Back 21

passive activity rules apply

Front 22

How is cancellation of debt treated for s corporation

Back 22

same as c corporation. applied at entity level
Note for partnership it is at partner level

Front 23

What is an accumulated adjustment account AAA

Back 23

When c changes to S the S corp maintains the account to track undistributed income that has been taxed during the period its S election is in effect. Not necessary if there is no prior c corporation earnings.

Front 24

What are the ordering rules 4 distributions from a s corp with accumulated E&P

Back 24

1. from AAA tax free to shareholders and a reduction of s/h basis
2. from E&P and taxable as dividends.
3. If applicable, from OAA other adjustments account, which includes accumulated tax exempt interest income not previously distributed and reduce basis

Front 25

How is s/h terminating his interest in the corporation treated by an s corporation

Back 25

generally treated as sale of stock, like a c corp. however with consent of all affected s/h may elect to allocate income and expenses as if the s corp tax year consisted of two separate short tax years-by attaching a statement to timely filed return. called sec 1377.

Front 26

What can happen of a s/h/EE is not being paid compensation in an effort of the s corp not to pay employment taxes

Back 26

irs may reclassify distributions as compensation

Front 27

How are health insurance premiums for s/h

Back 27

if s/h/EE is 2% owner or more, these fringe benefits are reported as w2 compensation without payroll taxes

Front 28

How is a distribution of property distributed to a s/h by an s corp when the FMV is greater the the s corp basis

Back 28

First s corp recognizes gain. s/h portion of gain increases s/h basis. No loss is recognized if the fair market value of the distributed property is less than the corporation basis.

Front 29

When and how is an s election revoked

Back 29

s/h holding more than 50% of stock must consent

Front 30

What are some of the passthru items that must be separately stated on s corporation

Back 30

rental income, portfolio income, CG or CL, sec 1231 gain or loss, contributions, sec 179 expense deduction, foreign tax, expenses related to portfolio income or loss, credits, AMT amounts, nonbusiness bad debts

Front 31

What rate is excess net passive income earned by s corp taxed

Back 31

35%

Front 32

What happens when a s/h sells her c corp and the buyer wants to change to an s corp

Back 32

All s/h must consent to election. If the election is made during the corp tax year, any s/h who held the stock at ANYTIME in the year must consent to the election, even through the person may have sold or xferred the stock before the election is made

Front 33

How long must a corp wait to make another s election

Back 33

5 years

Front 34

What does an S corp AAA accumulated adjustment account include

Back 34

The AAA a is a corporate account that does not relate to individual shareholders. The S corporation maintain the account to track undistributed income that has been taxed during the period its S election is in effect.

Front 35

What are two items that increase an s corp s/h basis

Back 35

additional contributions
share of exempt income

Front 36

what decreases s corp s/h basis

Back 36

losses and separately stated loss items
nondeductible expenses
nondividend distributions
depletion

Front 37

What entities cannot own stock in a s corp

Back 37

partnerships and corp c

Front 38

what increases s corp s/h basis

Back 38

Income, separately state income items
tax exempt income
excess depletion

Front 39

S corp suspended losses in excess of stock basis is carried forward

Back 39

INDEFINITELY

Front 40

What entity can be shareholders in corp s

Back 40

A tax exempt 501 C 3

Front 41

What is ordinary income for S corp

Back 41

Anything that is not separately stated income (eg contribution, tax exempt) is probably ordinary income

Front 42

What are the items that are not distributed and that are pass thru by a S corporation to its shareholders retaining its character

Back 42

rentals portfolio income, CG Cl section 1231, charitable contribution, section 179 expense deduction, foreign taxes credits, investment interest expense nonbusiness bad debts

Front 43

How long must an S corporation that was converted from a C corporation hold on to unrecognized built-in gains and built- in losses in order to not be taxed

Back 43

The S corporation pays tax on unrecognized built in gains at highest corporate rate. Unless the assets are held for at least 5 years after conversion from a C corporation to S Corporation

Front 44

Can a s-corporation own a partnership interest or own stock in A C corporation

Back 44

Yes

Front 45

What is the name of form 706

Back 45

United States Estate (and generation skipping transfer) tax return

Front 46

What is the name of form 709

Back 46

United States gift (and generation-skipping) transfer tax return

Front 47

How does a corporation make an election to be an S corporation

Back 47

If a corporation is making an S election during the corporation tax year for which it takes effect, each shareholder who holds stock at any time during part of that year before the election is made must also consent to the election. This is true even if the person may have sold or transferred his stock before the election is made