23- Clampett, Inc. (an S corporation) previously operated as a C corporation. Distributions from Clampett, Inc. are deemed to be paid in the following order:
A. The AAA account, prior C corporation earnings and profit, shareholder's remaining stock basis
B. Shareholder's remaining stock basis, the AAA account, prior C corporation earnings and profit
C. Prior C corporation earnings and profit, the AAA account, shareholder's remaining stock basis
D. Shareholder's remaining stock basis, prior C corporation earnings and profit, the AAA account
24- Clampett, Inc. has been an S corporation since its inception. On July 15, 2011, Clampett, Inc. distributed $50,000 to J.D.
His basis in his Clampett, Inc. stock on January 1, 2011, was $30,000. For 2011, J.D. was allocated $10,000 of ordinary
income from Clampett, Inc. and no separately stated items. What is J.D.'s basis in his Clampett, Inc. stock after
all transactions in 2011?
25- Sue and Andrew form SA general partnership. Each person receives an equal interest in the newly created partnership. Sue contributes $10,000 of cash and land with a FMV of $55,000. Her basis in the land is $20,000. Andrew contributes equipment with a FMV of $12,000 and a building with a FMV of $33,000. His basis in the equipment is $8,000, and his basis in the building is $20,000. How much gain must the SA general partnership recognize on the transfer of these assets from Sue and Andrew?
26- Under general circumstances, debt is allocated from the partnership to each partner in the following manner:
A. Recourse - profit-sharing ratios; nonrecourse - to partners with the ultimate responsibility for paying the debt
B. Recourse - capital ratios; nonrecourse - capital ratios
C. Recourse - to partners with the ultimate responsibility for paying the debt; nonrecourse - profit-sharing ratios
D. Recourse - profit-sharing ratios; nonrecourse - profit-sharing ratios
27 - Erica and Brett decide to form their new motorcycle business as an LLC. Each will receive an equal profits (loss) interest by contributing cash, property, or both. In addition to the members' contributions, their LLC will obtain a $50,000 nonrecourse loan from First Bank at the time it is formed. Brett contributes cash of $5,000 and a building he bought as a storefront for the motorcycles. The building has an FMV of $45,000, an adjusted basis of $30,000, and is secured by a $35,000 nonrecourse mortgage that the business LLC will assume. What is Brett's outside tax basis in his LLC interest?
28- Frank and Bob are equal members in Soxy Socks, LLC. When forming the LLC, Frank contributed $50,000 in cash and $50,000 worth of equipment. Frank's adjusted basis in the equipment was $35,000. Bob contributed $50,000 in cash and $50,000 worth of land. Bob's adjusted basis in the land was $30,000. On 3/15/04, Soxy Socks sells the land Bob contributed for $60,000. How much gain (loss) related to this transaction will Bob report on his X4 return?
23. Answer is b Shareholder's remaining stock basis, the AAA account, prior C corporation earnings and profit.
First, the remaining basis in the stock is always used followed by the AAA and the E&P. The Triple A is not taxable, but the E&P is taxable as a dividend. There is an election available to take E&P first before AAA, but that would not be a normal ordering.
The election is available under Sec 1368(e)(3).
If I didn't understand the problem correctly, it could be that there are no S corporation earnings because they just converted from a C. If that is true, then the ordering is changed to
Answer a The AAA account, prior C corporation earnings and profit, shareholder's remaining stock basis because distributions will relate to the source of the earnings.
24. Clampett basis at 1-1-2011 $30,000
Add 2011 ordinary income 10,000
Total basis before distribution $40,000
Distribution to the extent of
Remaining basis -0-
He would also report $10,000 of gain for distributions in excess of basis. This ...
The cited solution explains the concepts in taxation together with examples as needed for better understanding.