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Unformatted text preview: is a hybrid of a corporation and a partnership, but is mostly like a partnership.
Earnings (ordinary income is separately defined from other types of income) and cash distributions
(reductions to basis) are treated as they would be in a partnership. The K-1 is the form used by the S
corporation to report activity of the corporation related to the shareholders. (Note: Losses are limited to
basis in the corporation, so it should be calculated for each shareholder. Basis cannot be negative, or
capital gain will be recognized.)
Rule: Tax-exempt income is reportable but not taxable on the Form 1040. It is reported on the K-1 for the
S corporation for the shareholder.
Smith's basis in graphite stock:
Basis at 1/1/97 $12,000 Add: 50% ordinary income 40,000 Add: 50% tax exempt income 3,000 ($80,000 * 50%) taxed on Form 1040
($6,000 * 50%) reported on Form 1040
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This note was uploaded on 06/14/2013 for the course ACCOUNTING Regulation taught by Professor Becker during the Fall '10 term at Keller Graduate School of Management.
- Fall '10
- The Land