# 1. XYZ has been an S corporation since its inception six years

1. XYZ has been an S corporation since its inception six yearsResolved Question:1. XYZ has been an S corporation since its inception six years ago. On January 1 of the current year, the corporation’s two equal shareholders, John and Jane, had adjusted bases of \$150,000 and \$175,000, respectively, for their S corporation’s stock. The shareholders plan to have the corporation distribute land with a \$50,000 adjusted basis and a \$200,000 FMV in the current year. Ordinary income is expected to be \$180,000 in the current year. What tax issues should John and Jane consider with respect to the distribution?2. Zap Corporation has always been an S corporation and is 100% owned by David. David has a basis of \$40,000 in his Zap stock at the beginning of the year. During the year, Zap has an ordinary loss of \$20,000 and a long-term capital gain of \$10,000. In addition, Zap Corporation distributed \$55,000 in cash to David on December 1. Will the distribution cause David to recognize a gain? If so, what are its amount and character?3. An S corporation, reports the following results for the current year:Ordinary income \$70,000Long-term capital gain \$20,000Municipal bond interest income \$10,000Domestic corporate dividends \$6,000Charitable contributions \$16,000The corporation AAA and accumulated E&P balances at the beginning of the year are \$80,000 and \$50,000, respectively. The corporation makes a \$100,000 cash distribution to its sole shareholder on June 1 and a second \$100,000 cash distribution on December 1. The shareholder’s basis for the S Corp stock on January 1 was \$120,000. Discuss the tax consequences of these transactions.

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