FTax SM_ch23_p001-024

2011 Federal Taxation (with H&R BLOCK At Home(TM) Tax Preparation Software CD-ROM)

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Unformatted text preview: * C HAPTER E LEVEN * SCORPORATIONS SOLUTIONS TO PROBLEM MATERIALS DISCUSSION QUESTIONS 11-1 a. No. An S corporation may not own stock in an S corporation, per se. The QSub (qualified subchapter S subsidiary) rules permit one S corporation to own another corporation if it owns 100 percent of the subsidiary S corporations stock and elects to treat the subsidiary as a QSub. The QSub combines its income and deductions with those of the parent corporation. [See p. 11-4 and 1361(b)(2)(A).] b. Yes. When counting shareholders, stock owned by a husband and wife is treated as owned by one shareholder. This applies whether the stock is owned jointly or separately, as long as the couple is not divorced. Thus, this corporation has only 99 owners and falls below the general 100-shareholder eligibility requirement. [See p. 11-7 and 1361(b)(3).] c. Yes, but only if the trust is one of the five types of trusts permitted as shareholders. The one most applicable in this case is the voting trust. If the trust is established to exercise voting power for the childrens stock, it may hold stock in the S corporation. Each child is treated as a separate shareholder. [See p. 11-7 and 1361(c)(2)(A).] d. Yes. The corporation may have only one class of stock issued and outstanding. Stock that is authorized but is unissued does not invalidate the election. (See p. 11-8.) e. This corporation does not exceed the 100 shareholder limit, since the family members are all treated as one shareholder. With this ownership rule, the corporation has only 71 shareholders. (See p. 11-7 and 1361(c)(l)) 11-2 a. No, an S corporation can own stock in a C corporation or QSub. [See pp. 11-4 and 1361(b)(3).] b. No, a married couple counts as one shareholder. [See p. 11-7 and 1361(c)(2).] c. No, estates and resident aliens are eligible shareholders. [See pp. 11-3 and 11-4 and 1361(c).] d. No, the two minor children will count as shareholders, but L will not. [See Example 3, p. 11-7 and 1361(c).] e. No, as a custodian, L is ignored. f. No, since there are no owners of the preferred stock, it is unissued and is consequently acceptable.[See p. 11-8 and 1361(c)(4).] g. No, the differences in voting rights are authorized by 1361(c)(4). (See p. 11-8.) h. No. This corporation would exceed the 100 shareholder limit, except that the family members are treated as one shareholder. With this rule, the corporation has only 61 shareholders. (See p. 11-7 and 1361(c)(1)) 11-3 a . The termination rules do not apply in this case because an S corporation is allowed to own stock in a C corporation or QSub. [See pp. 11-4 and 1361(c)(6).] b. The termination is effective on December 29 because there are more than 100 shareholders on that date. (See pp. 11-7 and 11-12.) c. The election will terminate when the Englishman loses his status as a resident alien. (See pp. 1 1- 4 and 11-12.) d. The termination is effective the date of the exchange because two classes of stock have been issued at that point. (See pp. 11-8 and 11-12.)stock have been issued at that point....
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FTax SM_ch23_p001-024 - * C HAPTER E LEVEN * SCORPORATIONS...

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