Z Corporation ("Z") is adomestic corporaÂtion which has 120 shares of voting common stockoutstanding. In each of the following alternative situations,determine whether Z is eligible to elect S corporationstatus:
(a) Z has 99 unrelatedindividual shareholders, each of whom owns one share of Z stock.The remaining 21 shares are owned by A and his brother, B, as jointtenants with right of survivorship.
(b) Same as (a), above, exceptthat A and B are married and own 11 of the 21 shares as communityproperty. The remaining 10 shares are owned 5 by A as her separateproperty and 5 by B as his separate property.
(c) In (b), above, assume thatthe shareholders of Z elected S corporation status. What will bethe effect on Z's election if one year later A dies and bequeathsher interest in Z stock to F, her long-time friend?
(d) Same as (a), above, exceptthat the remaining 21 shares are held by a voting trust which hasthree beneficial owners.
(e) Same as (a), above, exceptthat the remaining 21 shares are owned by a revocable living trustcreated by an individual, the income of which is taxed to thegrantor under § 671.
(f) Same as (a), above, exceptthat the remaining 21 shares are owned by a testamentary trustunder which the surviving spouse has the right to income for herlife, with the remainder passing to her children. The trust is a"qualified terminable interest trust" (see §2056(b)(7)).
(g) Assume Z has 100 individualshareholders and forms a partnership with two other S corporations,each of which also has 100 individÂual shareholders, for thepurposes of jointly operating a business. Z's one-third interest inthis partnership is its only asset.
(h) Z has 100 shares of Class Avoting common stock and 50 shares of Class B nonvoting common stockoutstanding. Apart from the differences in voting rights, the twoclasses of common stock have equal rights with regard to dividendsand liquidation distributions. Z also has an authorized butunissued class of nonvoting stock which would be limited andpreferred as to dividends. The Class A common stock is owned byfour individuals and the Class B common stock is owned by E and F(a married couple) as tenants-in-common.
(i) Same as (h), above,except that Z enters into a binding agreement with its shareholdersto make larger annual distributions to shareholders who bearheavier state income tax burdens. The amount of the distributionsis based on a formula that will give the shareholdÂers equalafter-tax distributions.
(j) Z has four individualshareholders each of whom own 100 shares of Z common stock forwhich each paid $10 per share. Each shareholder also owns $25,000of 15-year Z bonds. The bonds bear interest at 3% above the primelending rate established by the Chase Manhattan Bank, adjustedquarterly, and are subordinated to general creditors ofZ.
Z Corporation ("Z") is adomestic corporaÂtion which has 120 shares of voting common stockoutstanding. In each of the following alternative situations,determine whether Z is eligible to elect S corporationstatus:
(a) Z has 99 unrelatedindividual shareholders, each of whom owns one share of Z stock.The remaining 21 shares are owned by A and his brother, B, as jointtenants with right of survivorship.
(b) Same as (a), above, exceptthat A and B are married and own 11 of the 21 shares as communityproperty. The remaining 10 shares are owned 5 by A as her separateproperty and 5 by B as his separate property.
(c) In (b), above, assume thatthe shareholders of Z elected S corporation status. What will bethe effect on Z's election if one year later A dies and bequeathsher interest in Z stock to F, her long-time friend?
(d) Same as (a), above, exceptthat the remaining 21 shares are held by a voting trust which hasthree beneficial owners.
(e) Same as (a), above, exceptthat the remaining 21 shares are owned by a revocable living trustcreated by an individual, the income of which is taxed to thegrantor under § 671.
(f) Same as (a), above, exceptthat the remaining 21 shares are owned by a testamentary trustunder which the surviving spouse has the right to income for herlife, with the remainder passing to her children. The trust is a"qualified terminable interest trust" (see §2056(b)(7)).
(g) Assume Z has 100 individualshareholders and forms a partnership with two other S corporations,each of which also has 100 individÂual shareholders, for thepurposes of jointly operating a business. Z's one-third interest inthis partnership is its only asset.
(h) Z has 100 shares of Class Avoting common stock and 50 shares of Class B nonvoting common stockoutstanding. Apart from the differences in voting rights, the twoclasses of common stock have equal rights with regard to dividendsand liquidation distributions. Z also has an authorized butunissued class of nonvoting stock which would be limited andpreferred as to dividends. The Class A common stock is owned byfour individuals and the Class B common stock is owned by E and F(a married couple) as tenants-in-common.
(i) Same as (h), above,except that Z enters into a binding agreement with its shareholdersto make larger annual distributions to shareholders who bearheavier state income tax burdens. The amount of the distributionsis based on a formula that will give the shareholdÂers equalafter-tax distributions.
(j) Z has four individualshareholders each of whom own 100 shares of Z common stock forwhich each paid $10 per share. Each shareholder also owns $25,000of 15-year Z bonds. The bonds bear interest at 3% above the primelending rate established by the Chase Manhattan Bank, adjustedquarterly, and are subordinated to general creditors ofZ.
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Thriller Corporation has one class of voting common stock, of which 1,000 shares are issued and outstanding. The shares are owned as follows:
| Joe Jackson | 400 |
| Mike Jackson (Joeâs son) | 200 |
| Jane Jackson (Joeâs daughter) | 200 |
| Vinnie Price (unrelated) | 200 |
| Total | 1,000 |
Thriller Corporation has current E&P of $300,000 for this year and accumulated E&P at January 1 of this year of $500,000.
During this year, the corporation made the following distributions to its shareholders:
03/31: Paid a dividend of $10 per share to each shareholder ($10,000 in total).
06/30: Redeemed 200 shares of Joeâs stock for $200,000. Joeâs basis in the 200 shares redeemed was $100,000.
09/30: Redeemed 60 shares of Vinnieâs stock for $60,000. His basis in the 60 shares was $36,000.
12/31: Paid a dividend of $10/share to each shareholder ($7,400 in total).
Compute the corporationâs accumulated E&P at January 1 of next year. (Round all intermediate calculations to 2 decimal places. Round final answers to the nearest dollar amount.)
