Hazel Is the Sole Shareholder of Maple Corp

question 109

Essay

Hazel is the sole shareholder of Maple Corp. In 2018 Maple operated as a C corporation and reported $15,000 of taxable income (and earnings and profits). In 2018, Maple elected S corporation status. During 2019 Maple reported $12,000 of ordinary business income and no separately stated items. It also distributed $25,000 to Hazel. What is the amount and character of income Hazel must recognize on the distribution? What is Hazel's stock basis at the end of 2019 (after accounting for the distribution) if her basis at the beginning of the year was $5,000?

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Definitions:

Automaticity

The ability to perform actions or processes without conscious thought, often as the result of learning, practice, and repetition.

Extended Practice

A learning method involving the repeated performance or review of a skill or information over a longer period to improve proficiency and retention.

Conscious Awareness

The state of being awake and aware of one's surroundings, thoughts, and feelings, enabling reflection and purposeful interaction with the environment.

Analogy

A cognitive process of transferring information or meaning from a particular subject (the analogue or source) to another (the target), often used in problem-solving and learning.