Presley Corp., a calendar-year corporation, was formed four years ago by its sole shareholder, Smith, who has always operated it as a C corporation. However, at the beginning of 2020, Smith made a qualifying S election for Presley Corp., effective January 1. Presley Corp. reported $140,000 of C corporation earnings and profits on the effective date of the S election. In 2020 (its first S corporation year), Presley Corp. reported business income of $100,000. Smith’s basis in his Presley Corp. stock at the beginning of 2020 was $30,000. What are the amount and character of gain Smith must recognize on the following distributions scenarios, and what is his basis in his Presley Corp. stock at the end of the year? Smith received a $80,000 distribution from Presley Corp. at the end of the year. Smith received a $260,000 distribution from Presley Corp. at the end of the year. Smith received a $300,000 distribution from Presley Corp. at the end of the year.
Presley Corp., a calendar-year corporation, was formed four years ago by its sole shareholder, Smith, who has always operated it as a C corporation. However, at the beginning of 2020, Smith made a qualifying S election for Presley Corp., effective January 1. Presley Corp. reported $140,000 of C corporation earnings and profits on the effective date of the S election. In 2020 (its first S corporation year), Presley Corp. reported business income of $100,000. Smith’s basis in his Presley Corp. stock at the beginning of 2020 was $30,000. What are the amount and character of gain Smith must recognize on the following distributions scenarios, and what is his basis in his Presley Corp. stock at the end of the year?
- Smith received a $80,000 distribution from Presley Corp. at the end of the year.
- Smith received a $260,000 distribution from Presley Corp. at the end of the year.
- Smith received a $300,000 distribution from Presley Corp. at the end of the year.
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