What stock basis and debt basis does Sally report at the end of 2024 and 2025, and 2026?

Question 1. Limbo Inc. was formed several years ago. Limbo made an S election last year after it accumulated $50,000 of E&P as a C corporation. As of December 31 of this year, the corporation has distributed none of its accumulated E&P. This year, Limbo reports the following results:

Dividends from domestic corporations = 70,000
Rental income= 190,000
Services income = 40,000
Expenses related to rental income = (50,000)
Expenses related to services income =(20,000)
Other expenses= (5,000)

Limbo has not provided significant services nor incurred substantial costs in connection with earning the rental income. The services income is derived from the active conduct of a trade or business.
What is Limbo’s excess net passive income tax liability?
In general (no calculation necessary), what effect does the excess net passive income tax liability have on Limbo’s shareholders’ pro rata share of ordinary business income and separately stated items?
Suggest at least three actions Limbo could take to minimize or avoid the excess net passive income tax.

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Question 2. Acacia Corp. was formed many years ago. Upon formation, it elected to use the cash method of accounting and adopted a calendar year end. This year, it made an S election that became effective on January 1 and reported the following results:
Acacia’s taxable income is $570,000.
Acacia had assets with an $810,000 fair value and a $230,000 adjusted basis on January 1.

Acacia collected all $300,000 of accounts receivables outstanding on January 1 of this year. The receivables had a zero adjusted basis.
Acacia sold. equipment for $6,000. The equipment had a $4,500 fair value and a $3,000 adjusted basis on January 1j Acacia claimed $1,000 of MACRS depreciation on the equipment this year prior to the sale.
Acacia sold land (a Sec. 1231 asset) for a $40,000 gain. The land had a $70,000 fair value and a $50,000 adjusted basis on January 1.
Acacia paid $160,000 of accounts payable outstanding on January 1. All the payables are deductible expenses.
What is Acacia’s built-in gains tax liability?
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Question 3. Arthur and Paulette formed Holly Corp. as an S corporation this year, with each shareholder contributing $13,000 in exchange for stock. In addition, Paulette loaned Holly $9,000, and the corporation borrowed another $11,000 from the bank. This year, Holly incurred a $30,000 operating loss. In the next year, Holly will earn $24,000 of operating income and make a $11,500 operating distribution (in cash) to each shareholder.
What is each shareholder’s stock basis at the end of this year and next year?
What is Paulette’s debt basis at the end of this year and next year?
What (pass-through) items do each shareholder report this year and next year?
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Question 4. Magnolia Corp. is a calendar-year S corporation with one shareholder, Cristobal. Magnolia incurred the following items in 2024 and 2025:
2024
Tax-exempt income = 10,000
Ordinary income = 35,000
2025
Ordinary loss = (50,000)
Cash distribution = 37,000
Long-term capital gain = 12,000
On January 1, 2024, Magnolia had AAA and OAA balances of zero and accumulated E&P of $7,000. Also on January 1, 2024, Cristobal had a $15,000 stock basis and a $14,000 basis in debt he loaned to the corporation.
What stock basis and debt basis does Cristobal report at the end of 2024 and 2025?
What are the balances in each corporate account (AAA, accumulated E&P, and OAA) at the end of 2024 and 2025?
What (pass-through) items does Cristobal report in 2024 and 2025?
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Question 5.Mangrove Corp. is a calendar-year S corporation with one shareholder, Sally. incurred the following items in 2024, 2025, and 2026:
2024
Ordinary loss = (29,000)
2025.
Ordinary income = 21,000
Cash distribution = 6,000
2026
Ordinary income = 16,000
Cash distribution =13,000
On January 1, 2024, Mangrove had an AAA balance of zero and accumulated E&P of $10,000, and Sally had a $12,000 stock basis and a $15,000 basis in debt she loaned to the corporation.
What stock basis and debt basis does Sally report at the end of 2024 and 2025, and 2026?
What are the balances in AAA and accumulated E&P at the end of 2024, 2025; and 2026?
What (pass-through) items does Sally report in 2024, 2025, and 2026?

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