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Maple, Inc. is an S corporation. It has accumulated Earnings & Profits and for three consecutive...

Maple, Inc. is an S corporation. It has accumulated Earnings & Profits and for three consecutive year-ends, more than 25 percent of its gross receipts have unfortunately consisted of dreaded passive investment income. This year, its passive investment income is $625,000, its deductions related to that passive investment income are $25,000, and its gross receipts equal $1,000,000. What amount of tax on excess passive investment income does Maple have for the current year?

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Answer #1

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If a corporation has always been an S corporation, the excess net passive income tax does not apply.

Excess net passive income tax applies to an S corporation if:

• The corporation has accumulated earnings and profits at the close of its tax year,

• The corporation has passive investment income for the tax year in excess of 25% of gross receipts, and

• The corporation has excess net passive income. Excess net passive income (ENPI) tax computation. Tax is 35% of excess net passive income.

The formula for Excess net passive income(ENPI)= NPI × [PII – (0.25 × GR)] ÷ PII

Net Passive Income(NPI) = Passive Investment Income - Deductions related to Passive Income

= $625,000-25,000 = $600,000

ENPI = $600,000 * [625,000-(0.25*1,000,000)] / 625,000

= $600,000 * 0.6

= $360,000

Net Passive Income Tax = $360,000*35%

= $126,000

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