Tax 311 Problem Set 4

Tax 311Problem Set #4I.A. P Corporation is a calendar year corporation owned by three individuals Adams, Baker and Chris. It has been in existence since 1999. On February 4, 2012, the three shareholders consent to an election on the part of the corporation to be taxed pursuant to Subchapter S. What is the effective date of the election and when does Ps status change from a C Corp to an S Corp?1. Would your answer to part (A) be different if the election is made and consented to on April 4, 2012?2. If Adams and Baker, but not Chris, consented to a revocation of the Sub S election on June 8, 2014, what is the effective date of the revocation?3. If Adams sold one share of stock to a non-resident alien individual on October 4, 2014, when would P Corporation cease to be a Subchapter S corporation?B. P Corporation is a calendar year corporation owned by three individuals Adams, Baker and Chris. It was formed on November 18, 2013. If the three shareholders consent to an election to be taxed as an S corporation on December 1, 2013 what is the effective date of that election?1. What would be the effective date of the election if the shareholders consented to the election on January 28, 2014?II. XYZ Corporation has elected to be taxed as a Subchapter S corporation. Joe Smith owned 100% of the corporation until February 28, 2013. On that date he sold 30% of his stock to Brian Bond. On June 30, 2013 he sold another 20% of his stock to Brian. For the calendar year 2013 its net book income is equal to $128,000. The following items were included in arriving at this figure: Federal Income taxLong-term Capital gainsShort-term Capital lossesCharitable ContributionsDividend IncomeTax exempt Municipal bond interest$ 22,00020,00012,0006,0001,00013,000What is XYZs taxable income for the year 2013 and what is Joes share of that income as well as the separately stated items of the corporation?III. Electing Corp. was organized as a C corporation on June 12, 1995. On January 7, 2012, it filed an election to be taxed as a Subchapter S corporation. At the time of its formation, Green acquired his stock in exchange for $3,000. On March 3, 2000 he sold 50% of his stock to Black for $25,000. During the period June 12, 1995 through December 31, 2011 Electing Corp accumulated $18,500 of earnings and profits. Electing Corp distributed $7,500 to both Green and Black on 12/31/13 and $10,000 to both of them on 12/31/14. For the years ending 2012 through 2014 it had the following items of income and loss:2002Income from operationsLong-term Capital lossTax-exempt bond interest20032004$13,00003,000$6,0004,0003,000$18,0002,0003,000A. What are Greens and Blacks basis in their Electing Corp stock as of 12/31/13, prior to considering the 2013 distribution?B. What is the balance in the corporations accumulated adjustment account as of 12/31/13, prior to considering the 2013 distribution?C. What is the amount and character of the 2013 distributions? D. What are Greens and Blacks basis in their Electing Corp stock as of 12/31/14, prior to considering the 2014 distribution?E. What is the balance in the corporations accumulated adjustment account as of 12/31/14, prior to considering the 2014 distribution?F. What is the amount and character of the 2014 distributions?IV. Young Corp, a corporation that had been in existence since 2004, elected Subchapter S status on January 2, 2012. At the time of its election it had two assets. Asset #1 had been acquired in 2009 and had an adjusted basis of $600,000 and a FMV at the time of the Sub S election equal to $1,100,000. Asset #2 had been acquired in 2009 and had an adjusted basis equal to $450,000 and a FMV of $350,000 at the time of the Sub S election. If Young Corp were to sell Asset #1 on March 3, 2014 for $1,300,000, what are the consequences to Young Corp and its sole shareholder Smith?