21-2 What are the eligibility requirements that a corporation must meet in order to qualify under Subchapter S?
1. Must be a domestic corporation
2. Must have no more than 100 shareholders
3. Must include only eligible shareholders
4. Must have only one class of stock
5. Must not be an ineligible corporation (pg 21-4 of text)
21-13 What limits are placed on the selection of a tax year of an S corporation? S corporations are required to have their end of year on December 31 or any other tax year for which it establishes a business purpose which meets the Internal Revenue Service cod 1378 (b). How do these limits differ from those applicable to C corporations and partnerships? C corporations can set any date for their end of year without establishing a business purpose. A partnerships end of year is based upon the end of year of the majority partner.
21-26 Durrabusiness is organized as a regular C corporation in 1986. At the beginning of the present year, Durrabusiness elects to be an S corporation. Will the election cause a recapture of the general business investment credit taken on any property purchased while a C corporation? No credit except for the general business credit carryforwards and the minimum tax credit from years in which the corporation was a C corporation is allowable in the computation of the tax. This means that Durrabusiness will be able to recapture the general business investment credit.
21-53 Several individuals form Lang Corporation on May 1, 2011. The corporation begins acquiring assets on June 1, 2011, and begins business on August 1, 2011. What is the latest date that Lang can file Form 2553 requesting S corporation status? For newly created corporation, the first tax year begins at the earliest occurrence of any of the following events: (1) when the corporation has shareholders, (2) when it acquires assets, or (3) when it begins doing business. An election must be made on, or before, the 14th days of the third month of the corporation’s tax year. Since the company was formed on May 1, 2011 (assuming that there were shares issues) the election must be made by August 15, 2011. (page 21-6 of text)
21-63 A shareholder purchases 30 percent of the stock of an S corporation two-thirds of the way through the year for $20,000. The S corporation incurs an operating loss of $300,000 for the year. What is the amount that the shareholder may deduct on his personal income tax return, assuming the at-risk and passive activity rules do not apply?
$300,000 * 30% * 2/3 = $60,000 since at-risk and passive activity rules do not apply this is the amount which the shareholder can deduct.