What is the solution to this problem? Barry Potter and Winnie Weasley are consid
ID: 2427364 • Letter: W
Question
What is the solution to this problem?
Barry Potter and Winnie Weasley are considering making an S election on March 1, 2015, for their C corporation, Omniocular. However, first they want to consider the implications of the following information: (Round your intermediate dollar calculations and final answer to the nearest whole dollar amount.)
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Barry and Winnie each own 50 percent of the voting power in Omniocular. However, Barry’s stock provides him with a claim on 60 percent of the Omniocular assets in liquidation.
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Omniocular was formed under Arizona state law, but it plans on eventually conducting some business in Mexico.
Is Omniocular eligible to elect S corporation status?
For the remainder of the problem, assume Omniocular made a valid S election effective January 1, 2015. Barry and Winnie each own 50 percent of the voting power and have equal claim on Omniocular’s assets in liquidation. In addition, consider the following information:
Omniocular reports on a calendar tax year.
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In 2015, 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.
Assume that if Omniocular were a C corporation for 2015, its taxable income would have been $88,500.
b.
How much LIFO recapture tax is Omniocular required to pay and when is it due?
How much built-in gains tax, if any, is Omniocular required to pay?
e.
Assume Barry's basis in his Omniocular stock was $40,000 on January 1, 2015. What is his stock basis on December 31, 2015?
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, 2016.
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In 2016, Omniocular reported the following income/expense items:
f.
For tax purposes, how would you recommend Barry and Winnie allocate income between the short S corporation year and the short C corporation year if they would like to minimize double taxation of Omniocular’s income?
g.
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, 2016, is $50,000, what is his stock basis on December 31, 2016?
• Winnie is a U.S. citizen and resident. • Barry is a citizen of the United Kingdom, but a resident of the United States.•
Barry and Winnie each own 50 percent of the voting power in Omniocular. However, Barry’s stock provides him with a claim on 60 percent of the Omniocular assets in liquidation.
•
Omniocular was formed under Arizona state law, but it plans on eventually conducting some business in Mexico.
Explanation / Answer
a) Yes b) Omniocular is required to pay tax on income of $ 103,500 [$88,500 & $15,000] c) Built gain tax is required to pay on gain of $12,000 and it is due on the sale of machinery
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