Question

[59] Gleim #: 17.4.141 We Converted, Inc., elected S corporation status in Year 2, after 10 years as a C corporation. At the date of conversion, the company had a $50,000 net operating loss (NOL) carryover, which it incurred in Year 1, and a $25,000 capital loss carryover. In Year 5, the company sold a vacant piece of property it owned for 11 years. The sales price of the property was $100,000 and an original cost of $25,000. Given the circumstances as stated above, which of the following statements is true? A. $75,000 of the capital gain is taxable, since the S corporation cannot succeed to the beneficial tax attributes of a former C corporation. B. Only $50,000 of the $75,000 capital gain is subject to S corporation tax. C. No amount of gain is taxable to the S corporation because all income items are separately stated to the shareholders. D. No amount of gain is taxable to the S corporation, because the total of the NOL and capital loss carryover ($75,000) can be used to offset the capital gain on the sale of the property.

Answer 1

Based on the given Circumsatnces of the Question The statement C that No amount of gain is taxable to the S corporation because all income items are separately stated to the shareholders, is true bacause:

- S corporation are pass through tax entities.

- There is no income tax payable at the Corpoarte level by S corporation.

- Individual owners pay the tax due at their individual level in their Income Tax Returns.

- Items of income, deduction, gain, loss, and credit are generally taken into account only by the shareholders and not by the corporation in computing taxable income and tax.