Mike and Nancy are equal shareholders in MN Corporation, an S corporation

C:11-37 Determination of Pass-Throughs and Stock Basis Adjustments

Mike and Nancy are equal shareholders in MN Corporation, an S corporation. The corporation, Mike, and Nancy are calendar year taxpayers. The corporation has been an S corporation during its entire existence and thus has no accumulated E&P. The shareholders have no loans to the corporation. The corporation incurred the following items in the current year:

Sales $300,000
Cost of goods sold 140,000
Dividends on corporate investments 10,000
Tax-exempt interest income 3,000
Section 1245 gain (recapture) on equipment sale 22,000
Section 1231 gain on equipment sale 12,000
Long-term capital gain on stock sale 8,000
Long-term capital loss on stock sale 7,000
Short-term capital loss on stock sale 6,000
Depreciation 18,000
Salary to Nancy 20,000
Meals and entertainment expenses 7,800
Interest expense on loans allocable to:
Business debt 32,000
Stock investments 6,400
Tax-exempt bonds 1,800
Principal payment on business loan 9,000
Charitable contributions 2,000
Distributions to shareholders ($15,000 each) 30,000

a. Compute the S corporation’s ordinary income and separately stated items.
b. Show Mike’s and Nancy’s shares of the items in Part a.
c. Compute Mike’s and Nancy’s ending stock bases assuming their beginning balances are $100,000 each. When making basis adjustments, apply the adjustments in the order outlined on pages C:11-24 and C:11-25 of the text.


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Bill and Guilda each own 50 percent of the stock of Radiata Corporation, an S corporation

Bill and Guilda each own 50 percent of the stock of Radiata Corporation, an S corporation. Guilda's basis in her stock is $25,000. On July 31, 2010, Bill sells his stock, with a basis of $40,000, to Loraine for $50,000. For the 2010 tax year, Radiata Corporation has a loss of $100,375.

a. Calculate the amount of the corporation's loss that may be deducted by Bill on his 2010 tax return.
b. Calculate the amount of the corporation's loss that may be deducted by Guilda on her 2010 tax return.
c. Calculate the amount of the corporation's loss that may be deducted by Loraine on her 2010 tax return.


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Cedar Corporation has an S corporation election in effect

Cedar Corporation has an S corporation election in effect. During the 2010 calendar tax year, the corporation had ordinary taxable income of $200,000, and on January 15, 2010, the corporation paid dividends to shareholders in the amount of $120,000. How much taxable income, in total, must the shareholders of the corporation report on their 2010 tax returns? Explain your answer.


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