Al owns Service Corp whose assets consist of $100,000 of accounts receivable in which Service Corp has a zero basis, and land held for investment worth $100,00 in which it has an adjusted basis of $10,000. C Corp E&P is $500,000 and there are no tax carryovers. Service elects S corp status on Jan 1 of the current year, and Service Corp collects the receivables in January but does not sell the land until the following year
A) What are the tax consequences to Service as a result of the collection of the receivables? Is the collection taxable, if so to whom, what is the character of the income?
B) What are the tax consequences (is anyone taxed and if so who is it, and what is the amount and character of any income) if the land is sold for $90,000?
C) Assume that just prior to the S Corp election Service Corp had an NOL of $15,000. Would that change your answer to part (a), and if so how?
D) Is Service taxed as a result of the S Corp election?