Problem
A. An S corporation is solely owned by a shareholder. During the year, the corporation receives $4,000 in tax-exempt interest. What effect does this tax-exempt interest have on the taxable income of the S corporation and the basis of the stock of the sole shareholder?
B. Why is the S corporation preferred over regular corporation status in the early years of operation?
C. Malcolm is the sole shareholder in an S corporation. At the beginning of the year, his basis in this stock is $7,000. For the year, the corporation incurs a $4,500 loss. By the end of the year, the corporation's stock is worthless. What is the amount of loss from the worthless stock that Malcolm is allowed to take on his return?
D. Alpha Corporation, a calendar-year S corporation, has no accumulated earnings and profits at the end of the year. An individual shareholder receives a cash distribution of $10,000 during the year. How will this distribution be recognized, assuming the shareholder has an $8,200 basis in his stock?
E. Acme Corporation, a calendar year S corporation, has $100,000 of Accumulated Earnings and Profits. Larry, the sole shareholder, has adjusted basis of $80,000 in stock basis with a $20,000 in Accumulated Adjustments Account. Determine the tax aspects if a $50,000 distribution is made to Larry.