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S_corp_allocations_solution

# S_corp_allocations_solution - Solution Allocation of S...

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Solution : Allocation of S corporation income & stock basis adjustments KJA, Inc is an electing S corporation with 100 shares outstanding. Karl owns 50 shares (basis: \$100,000), John owns 25 shares (basis: \$50,000), and Antoine owns 25 shares (basis: \$50,000). During 2010, KJA had ordinary income of \$50,000 and recognized a LTCG of \$36,500. (a) What is Karl, John and Antoine’s share of ordinary income (OI) and LTCG? Karl: OI = \$25,000; LTCG = \$18,250 John: OI = \$12,500; LTCG = \$9,125 Antoine: OI = \$12,500; LTCG = \$9,125 (b) Assume instead that Antoine sold his shares to Michael on February 28, 2010 (a non-leap year) for \$65,000. How much S corporation income does Antoine and Michael, respectively recognize? How much gain does Antoine recognize on the sale of his S corporation shares to Michael? Antoine: OI = \$12,500 * (28+31)/365 = \$2,021 LTCG = \$9,125 * (28+31)/365 = \$1,475 Basis = \$50,000 + \$2,021 + \$1,475 = \$53,496 LTCG = \$65,000 – \$53,496 = \$11,504 (from sale of stock) Michael:
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