Question 71. [LO 5] Pine Corp., a calendar-year corporation, was formed three years ago by it

71. [LO 5] Pine Corp., a calendar-year corporation, was formed three years ago by its sole shareholder, Connor, who has always operated it as a C corporation. However, at the beginning of this year, Connor made a qualifying S election for Pine Corp., effective January 1. Pine Corp. reported $70,000 of C corporation earnings and profits on the effective date of the S election. This year (its first S corporation year), Pine reported business income of $50,000. Connor’s basis in his Pine Corp. stock at the beginning of the year was $15,000. What is the amount and character of gain Connor must recognize on the following alternative distributions, and what is his basis in his Pine Corp. stock at the end of the year?

a. Connor received a $40,000 distribution from Pine Corp. at the end of the year.

b. Connor received a $60,000 distribution from Pine Corp. at the end of the year.

c. Connor received a $130,000 distribution from Pine Corp. at the end of the year.

d. Connor received a $150,000 distribution from Pine Corp. at the end of the year.

72. [LO 5] Carolina Corporation, an S corporation, has no corporate E&P from its years as a C corporation. At the end of the year, it distributes a small parcel of land to its sole shareholder Shadiya. The fair market value of the parcel is $70,000 and its tax basis is $40,000. Shadiya’s basis in her stock is $14,000. Assume Carolina Corporation reported zero taxable income before considering the tax consequences of the distribution.

a. What amount of gain or loss, if any, does Carolina Corporation recognize on the distribution?

b. How much gain must Shadiya recognize (if any) as a result of the distribution, what is her basis in her Carolina Corporation stock after the distribution, and what is her basis in the land?

c. What is your answer to (a) if the fair market value of the land is $25,000 rather than $70,000?

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d. What is your answer to (b) if the fair market value of the land is $25,000 rather than $70,000?

73. [LO5] Last year, Miley decided to terminate the S corporation election of her solely owned corporation on October 17,2013 (effective immediately), in preparation for taking it public. At the time of the election, the corporation had an accumulated adjustments account balance of $150,000 and $450,000 of accumulated E&P from prior C corporation years, and Miley had a basis in her S corporation stock of $135,000. During 2014, Miley’s corporation reported $0 taxable income or loss. Also, during 2014 the corporation made distributions to Miley of $80,000 and $60,000. How are these distributions taxed to Miley assuming the following?

a. Both distributions are in cash, and the first was paid on June 15 and the second on November 15.

b. Both distributions are in cash, and the first was paid on June 15 and the second on September 30.

c. The same facts in (b) except the June 15 distribution was a property (noncash) distribution (fair market value of distributed property equal to basis).

74. [LO 5] Alabama Corporation, an S corporation, liquidates this year by distributing a parcel of land to its sole shareholder Mark Ingram. The fair market value of the parcel is $50,000 and its tax basis is $30,000. Mark’s basis in his stock is $25,000.

a. What amount of gain or loss, if any, does Alabama Corporation recognize on the distribution?

b. How much gain must Mark recognize (if any) as a result of the distribution and what is his basis in the land?

c. What is your answer to (a) if the fair market value of the land is $20,000 rather than $50,000?

d. What is your answer to (b) if the fair market value of the land is $20,000 rather than $50,000?

75. [LO 6] Rivendell Corporation uses the accrual method of accounting and has the following assets as of the end of 2013. Rivendell converted to an S corporation on January 1, 2014.

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