Chapter 16 Exhibit 17a ANSWER 80000 tax free to the extent of AAA balance also

Chapter 16 exhibit 17a answer 80000 tax free to the

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Chapter 16, Exhibit 17a
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ANSWER: - $80,000 (tax-free to the extent of AAA balance, also reduces stock basis down to $25,000) - $10,000 (taxable as dividend to the extent of E&P account, does not reduce stock basis) - $15,000 (tax-free to the extent of PTI balance, also reduces S Corporation Distributions—Example stock basis down to $10,000) - $10,000 (tax-free to the extent of remaining stock basis) - $85,000 (taxable as capital gains) Chapter 16, Exhibit 17b
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S Corporation Penalty Taxes Although S corporations are tax-reporting entities (not tax-paying entities), they are subject to taxes in some limited scenarios: rhombus6 When the S corp sells assets within 10 years after the S corp election, the gain is taxed to the corporation at corporate tax rates (as if it was a C corporation) to the extent of pre-election built-in gains. IRC 1374 Recapture. rhombus6 If the S corporation has accumulated E&P and its gross passive investment income exceeds 25% of gross receipts, the excess passive income is taxed at corporate tax rates (as if it was a C corporation). Chapter 16, Exhibit 18a
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S Corporation Penalty Taxes— IRC 1374 Tax Example Built-In Gain Adjusted Basis at Election Date Fair Market Value at Election Date Asset FACTS: On 3/15/2000, a C corporation makes an election to become an S corporation. At the time of the election, the corporation had the following assets: $100,000 $300,000 $400,000 Land $100,000 $500,000 $600,000 Office Building Chapter 16, Exhibit 19a
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QUESTION: Determine the tax effect to the corporation of the following transactions: square4 One year after the election date, the corporation sells the building at a sales price of $700,000 when the adjusted basis is $450,000. square4 Twelve years after the election date, the corporation sells the land at a sales price of $500,000. S Corporation Penalty Taxes— IRC 1374 Tax Example 0 $200,000 $300,000 $500,000 $100,000 Land $100,000 $250,000 $450,000 $700,000 $100,000 Building Gain Subject to Sec. 1374 Tax Realized Gain Basis at Sales Date Sales Price Built-in Gain at Election Asset (e) = [Lesser of: (a) or (d)] x 35% (d)= (b) – (c) (c) (b) (a) Chapter 16, Exhibit 19b
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COMPUTATIONS Tax effect of 2001 sale of building: square6 S corporation: The corporation itself pays the $35,000 tax to the IRS. (35% x [the lesser of 100,000 or 250,000]) The sale of the land falls outside of the 10-year recapture period. S Corporation Penalty Taxes— IRC 1374 Tax Example Chapter 16, Exhibit 19c square6
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Computations square6 Code Sec. 1375 Tax = 35% x Excess Net Passive Income square6 Excess Net Passive Income = [(a) – (25% x (c))] * (b) (a) (a) = Gross passive investment income (e.g., royalties, rents, dividends, S Corporation Penalty Taxes— IRC 1375 Tax on Excess Net Passive Income interest, annuities, and gain on sales of securities) (b) = Net passive investment income (i.e., gross amount net of investment expenses) (c) = Gross receipts (i.e., receipts from all sources including active and passive sources) square6 Essentially the formula penalizes net passive income to the extent that it exceeds 25% of gross receipts.
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  • Fall '14
  • fabioambrosio
  • Accounting, Corporation, Limited Liability Company, C CORPORATION

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