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Flashcards in Reg 3 Deck (19):

What's the basis formula for an S-Corp.

Initial Basis
+ or - % Income/Loss, Muni Bond Interest, Separately stated items
Less Distributions Received
Equals Net Bais


What are the Separately stated items.

Capital GainLoss
Section 1231 Gain/Loss
Section 179 Depreciation
Rent and Royalty Income
Charitable Contributions
Interest Income on Investment


Is a distribution received in an S Corp taxable?

No it reduces the basis. Because you pay the tax when it is earned and it is reported to you on the K-1. IOW, it's like getting the dividend and they don't want it to be double taxed.


S Corp. Net Business Income (AKA Ordinary Business Income)
-Income computed on Average Daily Basis per Share
How does this work if you have $365,000 of income and 100 outstanding shares?
And the person held 5 shares since 11/30/X1.

365,000/365 days = $1000/day
$1000 Per day/ 100 Shares = $10/share per day
5 Shares x $10 x 31 days = $1,550


What is definition of at risk for S corp and what does it limit?

The loss is limited to the amount you have at risk.

Amount invested plus amount loaned to the company = amount at risk per IR66


Loss that's limited in SCorp what do you do with it?

Carried forward


Municipal bond interest and S corps and Partnerships (not sure if C corps.)

The basis goes up, but you don't pay any taxes on it so reported separate.y


Muni Bond Interest does what to your basis, but

Increases your basis, but it isn't taxable


G and A
Capital Loss
Net Income

You get to the net income on the K, but the last two items are separately listed on the K-1

Note that the K is the summary and the K-1 is for each shareholder


Separately stated items are items that are subject to certain limitations on your tax return
Example: Capital loss limited to $3,000
Charitable Contributions: Max is 50% of AGI
Section 179: Subject to limitations
Rent and Royalty: Passive activity loss no more than $25,000 and phases out over $100,000
Tax Credits: Limited to Tax liabilityd

see notes above


What is ordinary business items

Income before separately stated items.


When it's C corp and then it goes to an S Corp.
then they have AEP. Accumulated earnings and profits

AAA = accumulated adjustment account, not taxable, taxed when the S corp reported on K-1

Cumulative total of income not distributed to shareholders

See above


So when this C corp that become an S corp and never paid divs as c corp finally pays out.
I think first it goes to AAA
AAA = accumulated adjustment account (money you'e already been taxed on on your K-1)
then, this AAA account belongs to the S corp and it's where it's been adding up all the profit it reports. After you run out of this it comes out of

AEP = Accumulated earnings and profits, this is also like an accumulated earnings (like RE I guess) that have were never distributed and these are taxable as dividends and then after these are used up it's

Basis - return of your original investment, which is also not taxable and reduces your basis

More than your Basis - It's taxable as a capital gain

See above


S Status Termination
50% of stockholders or violate rules and no longer small and simple
Have common and preferred
101 shareholders

Voluntarily or involuntarily (revoked)
Shares sold to nonresident

Once revoked your SOL for 5 years, no S corp.
If 25% of gross receipts are from passive income (per section 1362) for three consecutive years and, if during these years, the corporation was a prior C corp with AEP accumulated earnings and profits

Notes See above


What is passive income

Receipts from rents, royalties, dividends, interest, annuities, gain from sales or exchange of stock or securities


What happens if you S is terminated during the tax year

Must allaocate between two based on 365 day year.


Built in Gain Tax (BIG):
If C corp elects S corp and the FMV exceeds their basis. The difference is a net unrealized built-in gain.

If the assets are sold within 5 years they are taxed at a 35% rate. This changes as far as the holding period, so he says check the law.

See above


What are uniform capitalization rules for S corps?



So for the built in capital gains tax it's the gain when the conversion tax place that's taxable, has nothing to do with the FMV (well as far as what the S corp pays and note that the S corp pays it.

2 questions in Roger on this on page 3-19, 3-20 #2 and #9