General Facts. Especially Special Sandboxes Company (ESS), is an S-Corp. owned that is owned by Abner, Beth, and Cassandra. The shareholder's stock holdings an basis in that stock are as follows: Shareholder Total Shares Basis Abner 10,000 $30,000 Beth 10,000 $25,000 Cassandra 10,000 $20,000 Problem 1. Loss Limitation Rules. Using the "General Facts" as given above, please analyze the tax consequences (both the income tax consequences and any impact on shareholder basis) for each of the following scenarios. a. What if Abner, Beth and Cassandra all work six months of the year for ESS but receive no income from the company because it runs at a total operating loss of $75,000 for the year? All shareholders had active income of at least $50,000 from other sources. b. Continuing from the facts of (a) above and disregarding (b), what if in the following year the company earned $18,000 of operating income and distributed $15,000 to its shareholders? c. Would your answer to (a) and (b) above for Cassandra change if she gave a $20,000 loan to ESS to cover operating expenses in the first year and then in the second year the company repaid this loan? d. Disregarding (a) and (b) above, what if Cassandra works full time for ESS all year earning a salary of $50,000 (Abner and Beth do not work for the company at all) and the company has a loss from operations of $75,000. Abner and Beth both have over $50,000 of income from full time employment elsewhere and Abner has passive income of $15,000 from other sources (Beth earns no passive income)? Problem 2. Special Rules. Returning to the original General Facts and disregarding Problem 1. What would be the tax consequence if ESS used to be a C-Corp and had carryover E&P of $15,000 plus the corporation had operating income of $30,000 during the year, a capital loss of $6,000, and made distributions of $60,000 during the year. Also, assume the company's starting AAA account was $3,000. General Facts. Especially Special Sandboxes Company (ESS), is an S-Corp. owned that is owned by Abner, Beth, and Cassandra. The shareholder's stock holdings an basis in that stock are as follows: Shareholder Total Shares Basis Abner 10,000 $30,000 Beth 10,000 $25,000 Cassandra 10,000 $20,000 Problem 1. Loss Limitation Rules. Using the "General Facts" as given above, please analyze the tax consequences (both the income tax consequences and any impact on shareholder basis) for each of the following scenarios. a. What if Abner, Beth and Cassandra all work six months of the year for ESS but receive no income from the company because it runs at a total operating loss of $75,000 for the year? All shareholders had active income of at least $50,000 from other sources. b. Continuing from the facts of (a) above and disregarding (b), what if in the following year the company earned $18,000 of operating income and distributed $15,000 to its shareholders? c. Would your answer to (a) and (b) above for Cassandra change if she gave a $20,000 loan to ESS to cover operating expenses in the first year and then in the second year the company repaid this loan? d. Disregarding (a) and (b) above, what if Cassandra works full time for ESS all year earning a salary of $50,000 (Abner and Beth do not work for the company at all) and the company has a loss from operations of $75,000. Abner and Beth both have over $50,000 of income from full time employment elsewhere and Abner has passive income of $15,000 from other sources (Beth earns no passive income)? Problem 2. Special Rules. Returning to the original General Facts and disregarding Problem 1. What would be the tax consequence if ESS used to be a C-Corp and had carryover E&P of $15,000 plus the corporation had operating income of $30,000 during the year, a capital loss of $6,000, and made distributions of $60,000 during the year. Also, assume the company's starting AAA account was $3,000
