Question

1.Suppose SPA Corp. was formed by Sara Inc. (a C corporation that is 100% owned by Sara) and Sara's friend Tyson. In exchange for 50% of the stock of SPA, Sara contributed $100,000. In exchange for the remaining 50% of the SPA stock, Tyson contributed a building with a fair market value of $100,000 and an adjusted tax basis of $60,000. How much gain is Tyson required to recognize on the contribution? Is SPA eligible to elect S corporation status?

2.Jason is one of 100 shareholders in Jace Corporation. The remaining 99 shareholders are unrelated individual U.S. residents. During the year, Jason gave several of his shares in Jace Corp. to his brother as a birthday present and to his best friend Hal (unrelated to all shareholders in Jace Corp.) as a wedding present. After these gifts, Jace Corp. has 102 shareholders. Is Jace Corp. prohibited from electing to become an S corporation? Explain.

3.Maria, a resident of Mexico City, Mexico, formed MZE Corp. in Mexico under Mexican law but planned to do business in the United States. Is MZE eligible to elect S corporation status in the United States? Explain.

4.     Maria resides in San Antonio, Texas. She formed MZE Corporation under the state laws of Texas. Maria anticipates that she will conduct her business activities in both Mexico and the United States. Is MZE eligible to elect S corporation status? Explain.

Answer 1

Ans 1. Yes SPA is eligible to become a S Corporation as it has no more than 100 shareholders.

Ans 2. Jace corporation has more than 100 shareholders now, so it is prohibited to become S Corporation now.

Ans 3. No, MZE is not eligible to become S Corporation in United States because it has shareholder named Maria who is a Non resident in United States.

Ans 4. MZE is eligible to be S Corporation in Texas but for United States it is not eligible to become as S Corporation because Maria is non resident in United States.