Question
PROJECT S CORPORATIONS CSU, Inc., is a calendar year S corporation. CSUs Form 1120S shows nonseparately stated ordinary income of $120,000 for the year. Taewon
PROJECT S CORPORATIONS
CSU, Inc., is a calendar year S corporation. CSUs Form 1120S shows nonseparately stated ordinary income of $120,000 for the year. Taewon owns 30% of the CSU stock throughout the year. The following information is obtained from the corporate records.
Tax-exempt interest income | $4,500 |
Salary paid to Taewon | (78,000) |
Charitable contributions | (9,000) |
Dividends received from a non-U.S. corporation | 7,500 |
Short-term capital loss | (9,000) |
Depreciation recapture income | 16,500 |
Refund of prior state income taxes | 7,500 |
Cost of goods sold | ($108,000) |
Long-term capital loss | (10,500) |
Administrative expenses | (27,000) |
Long-term capital gain | 21,000 |
Selling expenses | (16,500) |
Taewons beginning stock basis | 48,000 |
Taewons additional stock purchases | 13,500 |
Beginning AAA | 46,500 |
Taewons loan to corporation | 30,000 |
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- Compute CSUs taxable income or loss, showing the calculation (on a white paper schedule not on IRS forms). Taxable income should equal Form 1120S, Schedule K, line 18, which should be the same as Form 1120S, Schedule M-1, line 8. Assume the I.R.C. section 1374 and 1375 taxes do not apply. HINT: the refund of prior state income taxes is taxable other income. TI check figure $127,500.
- Compute Taewons stock basis, showing the calculation, before any distribution. Taewons ending stock basis check figure before any distribution $101,100.
- Calculate CSUs ending AAA balance, showing the calculation, before any distribution.
- Assume all facts remain the same and CSU distributes $400,000 total during the tax year to all shareholders proportionately. Show the effect, if any, of the distribution on Taewons stock basis and ending AAA.
- Assume all facts remain the same and CSU had previously been a C corporation and had 60,000 of E&P. Show the effect, if any, of the distribution on Taewons stock basis, ending AAA, ending E&P. Show also the taxability, if any, of the distribution to Taewon. HINT: calculate the allocation of AAA to Taewon for distribution computations, even though AAA is a corporate account.
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