Hector Formed H Corporation as a C Corporation at the Beginning

question 109

Essay

Hector formed H Corporation as a C corporation at the beginning of 2014. Hector was the sole shareholder of H Corporation. H Corp. reported 2014 taxable income (and earnings and profits) of $200,000. At the beginning of 2015, H Corp. elected S corporation status. During 2015, H Corp. had a rough year, reporting an ordinary business loss of $70,000, $4,000 of dividend income, and $3,000 of interest income. H Corp. also distributed $15,000 to Hector. What is the amount and character of gain/income Hector must recognize on the distribution (if any)? What is the balance in H Corporation's accumulated adjustments account (AAA) at the end of 2015?

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Definitions:

Employee's Ability

The skills, knowledge, and competencies that an employee possesses, which enable them to perform their job effectively.

Complexity

The quality of a system characterized by nonlinear, noncausal outcomes. One cannot predict the endpoint of a complex system from its starting point.

Social Presence Theory

A theory describing the degree to which information and communication technologies (ICTs) foster feelings of co-presence even when people are separate in space and time.

Social Lives

The part of a person's time spent engaging in interpersonal relationships with friends and acquaintances outside of work and family commitments.