Omniocular made a valid S election effective January 1, 2024. Barry and Winnie each own 50 percent of the voting power and have an equal claim on Omniocular's assets in liquidation. In addition, consider the following information: Omniocular reports on a calendar tax year. Omniocular's earnings and profits as of December 31, 2023, were $55,000. Omniocular's 2023 taxable income was $15,000. Omniocular's assets at the end of 2023 are as follows: Omniocular Assets December 31, 2023 Asset Adjusted Basis FMV Cash $ 50,000 $ 50,000 Accounts receivable 20,000 20,000 Investments in stocks and bonds 700,000 700,000 Investment in land 90,000 100,000 Inventory (LIFO) 80,000*Footnote asterisk 125,000 Equipment 40,000 35,000 Totals $ 980,000 $ 1,030,000 *Footnote asterisk$110,000 under FIFO accounting. On March 31, 2024, Omniocular sold the land for $42,000. In 2024, Omniocular sold all the inventory it had on hand at the beginning of the year. This was the only inventory it sold during the year. Other Income or Expense Items for 2024 Sales revenue $ 155,000 Salary to owners (50,000) Employee wages (10,000) Depreciation expense (5,000) Miscellaneous expenses (1,000) Interest income 40,000 Qualified dividend income 65,000 Assume that if Omniocular were a C corporation for 2024, its taxable income would have been $88,500. 1. Assume Barry's basis in his Omniocular stock was $40,000 on January 1, 2024. What is his stock basis on December 31, 2024? For the following questions, assume that after electing S corporation status Barry and Winnie had a change of heart and filed an election to terminate Omniocular's S election, effective August 1, 2025. In 2025, Omniocular reported the following income or expense items: January 1—July 31, 2025 (212 days) August 1—December 31, 2025 (153 days) January 1—December 31, 2025 Sales revenue $ 80,000 $ 185,000 $ 265,000 Cost of goods sold (40,000) (20,000) (60,000) Salaries to Barry and Winnie (60,000) (40,000) (100,000) Depreciation expense (7,000) (2,000) (9,000) Miscellaneous expenses (4,000) (3,000) (7,000) Interest income 6,000 5,250 11,250 Overall net income (loss) $ (25,000) $ 125,250 $ 100,250 2. Assume in part (f) that Omniocular allocates income between the short S and C corporation years in a way that minimizes the double taxation of its income. If Barry's stock basis in his Omniocular stock on January 1, 2025, is $50,000, what is his stock basis on December 31, 2025?

Omniocular made a valid S election effective January 1, 2024. Barry and Winnie each own 50 percent of the voting power and have an equal claim on Omniocular's assets in liquidation. In addition, consider the following information: Omniocular reports on a calendar tax year. Omniocular's earnings and profits as of December 31, 2023, were $55,000. Omniocular's 2023 taxable income was $15,000. Omniocular's assets at the end of 2023 are as follows: Omniocular Assets December 31, 2023 Asset Adjusted Basis FMV Cash $ 50,000 $ 50,000 Accounts receivable 20,000 20,000 Investments in stocks and bonds 700,000 700,000 Investment in land 90,000 100,000 Inventory (LIFO) 80,000Footnote asterisk 125,000 Equipment 40,000 35,000 Totals $ 980,000 $ 1,030,000 Footnote asterisk$110,000 under FIFO accounting. On March 31, 2024, Omniocular sold the land for $42,000. In 2024, Omniocular sold all the inventory it had on hand at the beginning of the year. This was the only inventory it sold during the year. Other Income or Expense Items for 2024 Sales revenue $ 155,000 Salary to owners (50,000) Employee wages (10,000) Depreciation expense (5,000) Miscellaneous expenses (1,000) Interest income 40,000 Qualified dividend income 65,000 Assume that if Omniocular were a C corporation for 2024, its taxable income would have been $88,500. 1. Assume Barry's basis in his Omniocular stock was $40,000 on January 1, 2024. What is his stock basis on December 31, 2024? For the following questions, assume that after electing S corporation status Barry and Winnie had a change of heart and filed an election to terminate Omniocular's S election, effective August 1, 2025. In 2025, Omniocular reported the following income or expense items: January 1—July 31, 2025 (212 days) August 1—December 31, 2025 (153 days) January 1—December 31, 2025 Sales revenue $ 80,000 $ 185,000 $ 265,000 Cost of goods sold (40,000) (20,000) (60,000) Salaries to Barry and Winnie (60,000) (40,000) (100,000) Depreciation expense (7,000) (2,000) (9,000) Miscellaneous expenses (4,000) (3,000) (7,000) Interest income 6,000 5,250 11,250 Overall net income (loss) $ (25,000) $ 125,250 $ 100,250 2. Assume in part (f) that Omniocular allocates income between the short S and C corporation years in a way that minimizes the double taxation of its income. If Barry's stock basis in his Omniocular stock on January 1, 2025, is $50,000, what is his stock basis on December 31, 2025?

SWFT Comprehensive Vol 2020

43rd Edition

ISBN:9780357391723

Author:Maloney

Publisher:Maloney

Chapter28: Income Taxation Of Trusts And Estates

Section: Chapter Questions

Problem 4BCRQ

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Question

Omniocular reports on a calendar tax year.
Omniocular's earnings and profits as of December 31, 2023, were $55,000.
Omniocular's 2023 taxable income was $15,000.
Omniocular's assets at the end of 2023 are as follows:

Asset	Adjusted Basis	FMV
Omniocular Assets
December 31, 2023
Cash	$ 50,000	$ 50,000
Accounts receivable	20,000	20,000
Investments in stocks and bonds	700,000	700,000
Investment in land	90,000	100,000
Inventory (LIFO)	80,000^*Footnote asterisk	125,000
Equipment	40,000	35,000
Totals	$ 980,000	$ 1,030,000

*Footnote asterisk$110,000 under FIFO accounting.

On March 31, 2024, Omniocular sold the land for $42,000.
In 2024, Omniocular sold all the inventory it had on hand at the beginning of the year. This was the only inventory it sold during the year.

Other Income or Expense Items for 2024
Sales revenue	$ 155,000
Salary to owners	(50,000)
Employee wages	(10,000)
Depreciation expense	(5,000)
Miscellaneous expenses	(1,000)
Interest income	40,000
Qualified dividend income	65,000

- Assume that if Omniocular were a C corporation for 2024, its taxable income would have been $88,500.

1. Assume Barry's basis in his Omniocular stock was $40,000 on January 1, 2024. What is his stock basis on December 31, 2024?

For the following questions, assume that after electing S corporation status Barry and Winnie had a change of heart and filed an election to terminate Omniocular's S election, effective August 1, 2025.

In 2025, Omniocular reported the following income or expense items:

	January 1—July 31, 2025 (212 days)	August 1—December 31, 2025 (153 days)	January 1—December 31, 2025
Sales revenue	$ 80,000	$ 185,000	$ 265,000
Cost of goods sold	(40,000)	(20,000)	(60,000)
Salaries to Barry and Winnie	(60,000)	(40,000)	(100,000)
Depreciation expense	(7,000)	(2,000)	(9,000)
Miscellaneous expenses	(4,000)	(3,000)	(7,000)
Interest income	6,000	5,250	11,250
Overall net income (loss)	$ (25,000)	$ 125,250	$ 100,250

2. Assume in part (f) that Omniocular allocates income between the short S and C corporation years in a way that minimizes the double taxation of its income. If Barry's stock basis in his Omniocular stock on January 1, 2025, is $50,000, what is his stock basis on December 31, 2025?

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