Reference no: EM133180874

Question - Laura forms X Corp, a calendar year taxpayer, on Jan. 1, 2017, and is X Corp's sole shareholder. X Corp began business operations on the date of formation. Laura decides to make an S election for X Corp and files the election on April 15, 2017. On October 15, 2018, Laura files a revocation of the S election and does not specify a revocation date. On the effective date of the revocation, Laura has an adjusted basis in X Corp stock of $-0-, $4,000 of debt basis, and suspended losses of $10,000; X Corp has AAA of $2,000 and Accumulated E&P of $3,000. Answer the following questions:

(a) On what date is the S election effective? On what date is the S election revocation effective?

(b) Can Laura deduct the suspended losses after the revocation of the S election? If so, during what period of time?

(c) Instead of Laura having zero stock basis and suspended losses, assume she has $1,000 stock basis, zero debt basis, and no suspended losses on the effective date of the revocation of the S election. On the effective date of the revocation, X Corp has AAA of $2,000 and E&P of $4,000. X Corp has positive current E&P of $600 in 2019 and $700 in 2020. X Corp makes the following two distributions. What are the tax consequences to Laura and X Corp of the following distributions?

(1) $1,500 cash on April 1, 2019.

(2) $1,000 cash on April 1, 2020.