Neal Corporation Was Initially Formed as a C Corporation with a Calendar

question 51

Essay

Neal Corporation was initially formed as a C corporation with a calendar year end. Neal elected S corporation status, effective January 1, 2014. On December 31, 2013, Neal Corp. reported earnings and profits of $150,000. Beginning in 2014, Neal Corp. reported the following information. Does Neal Corp.'s S election terminate due to excess net passive income? If so, what is the effective date of the termination? $$\begin{array} { | c | c | c | c | } \hline \text { Year } & \begin{array} { c } \text { Gross Receipts } \\\text { (including passive } \\\text { investment income) }\end{array} & \begin{array} { c } \text { Passive } \\\text { investment income }\end{array} & \begin{array} { c } \text { Corporate } \\\text { Earnings and Profits } \\\text { (end of year) }\end{array} \\\hline 2014 & \$ 400,000 & \$ 120,000 & \$ 140,000 \\\hline 2015 & \$ 300,000 & \$ 70,000 & \$ 100,000 \\\hline 2016 & \$ 500,000 & \$ 130,000 & \$ 70,000 \\\hline 2017 & \$ 400,000 & \$ 110,000 & \$ 40,000 \\\hline 2018 & \$ 600,000 & \$ 155,000 & \$ 1,000 \\\hline\end{array}$$

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Definitions:

Justice Department

A part of the U.S. federal government responsible for the enforcement of the law and administration of justice.

Federal Trade Commission

A U.S. federal agency tasked with protecting consumers and ensuring a strong competitive market by preventing anticompetitive, deceptive, and unfair business practices.

Friendly Merger

A merger transaction agreed upon and conducted in a cooperative manner by all involved parties, typically with shared strategic goals.

Friendly Consolidation

A type of corporate merger or acquisition that is agreed upon and pursued with the cooperation of both the target and acquiring companies.