Question

Post Corporation, an S corporation with prior year Subchapter C earnings and profits, has for its...

Post Corporation, an S corporation with prior year Subchapter C earnings and profits, has for its current taxable year total gross receipts of $500,000, including passive investment income of $300,000, $220,000 of which is interest income. Post also has expenses directly connected with the production of this interest income in the amount of $50,000. What is Post’s tax on excess net passive income?

$ 51,042

$ 61,250

$ 36,458

$ 69,602
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Answer #1

An S corporation is liable to pay tax on excess net passive income if its passive income is in excess of 25% of its gross receipts.

Tax rate on excess net passive income is 35%

In the given case,

Passive Investment Income = $300,000

Gross Receipts = $500,000

25% of the gross receipts = $500,000 * 25% = $125,000

Excess net passive income = $300,000 - $125,000

Excess net passive income = $175,000

Tax on excess net passive income = $175,000 * 35%

Tax on excess net passive income = $61,250

Hence, the correct answer is B) $61,250

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