Sally is the sole shareholder of an S corporation. At the beginning of the year her stock basis is $35,000. During the year the S corporation experienced the following:

Sales $50,000

Cost of goods sold 20,000

Tax-exempt interest income 4,000

Long-term capital gain 2,000

Advertising expenses 5,000

Charitable contribution 5,000

Distribution to Sally 24,000

-What is Sally's stock basis at the end of the year?

R is the sole shareholder of an S corporation. R's tax basis in the stock of the S corporation is $200 at the beginning of Year 1. During Year 1, the S corporation has an $800 ordinary loss. R also loans the S corporation $500 in Year 1. In Year 2, the S corporation has a $600 ordinary income.

-How much of the loss in Year 1 is deductible by R in Year 1? How much in Year 2?

Explain.

-What is R's stock basis and R's debt basis at the end of Year 2?

Bee Corporation, a C corporation, owns 80% of the single class of stock in Fly Corporation, a C corporation. The other 20% is owned by Mandy, an individual. Bee's basis in its Fly Corporation stock is $120,000 and Mandy's basis is $10,000. Fly Corporation distributes property having an adjusted basis of $60,000 and a FMV of $80,000 to Bee Corporation and $20,000 of money to Mandy as a liquidating distribution. Fly Corporation has E&P of $100,000 at the time of the distribution.

-What are the income tax consequences to Fly, Bee?

-What are the income tax consequences to Mandy?

R, an individual, is the sole shareholder of a C corporation. R has a stock basis of $30 in the C corporation. The C corporation has one asset, Blackacre (tax basis $60, fmv $100). The C corporation completely liquidates by distributing Blackacre to R.

-What are the income tax consequences to R as a result of the liquidation of the C

corporation?

Beth, an individual, owns 25% of Sandy Corporation's single class of stock. Sandy Corporation is a C corporation. Beth's tax basis in Sandy Corporation's stock is $18,000. Sandy Corporation's E&P is $26,000. Beth is not related to any other Sandy Corporation shareholder.

-If Sandy Corporation redeems all of Beth's stock for $30,000, how much capital gain does Beth recognize?

R is the sole owner of ABC, Inc., and ABC, Inc. is the sole owner of XYZ, Inc. Explain the following in detail:

-Is either ABC, Inc. or XYZ, Inc. a qualified subchapter S subsidiary (QSub)?

-Additionally, how is a QSub treated for income tax purposes?

Stanley, Amber, and Martin are the only shareholders of SAM Corporation. SAM Corporation has only 1 class of stock outstanding. Stanley and Martin are brothers. Amber is Martin's spouse (Stanley's sister-in-law). Stanley owns 40 shares of SAM, Amber owns 30 shares of SAM and Martin owns 30 shares of SAM. SAM Corporation redeems 25 of Martin's shares for $10,000.

-Martin's basis in those 25 shares is $7,000. Assume that SAM Corporation's earnings and profits balance is $50,000. Explain the tax consequences to Martin on the redemption of the 25 shares.