Hazel Is the Sole Shareholder of Maple Corp

question 68

Essay

Hazel is the sole shareholder of Maple Corp. In 2014 Maple operated as a C corporation and reported $15,000 of taxable income (and earnings and profits). In 2014, Maple elected S corporation status. During 2015 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 2015 (after accounting for the distribution) if her basis at the beginning of the year was $5,000?

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Definitions:

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that good, indicating the sensitivity of demand to price changes.

Elastic

A description of a good's demand or supply that indicates a high sensitivity to changes in price, where a small change in price leads to a larger change in quantity demanded or supplied.

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that good, with elasticity greater or less than one indicating the degree of responsiveness.

Quantity Demanded

The specific amount of a good or service consumers are willing to buy at a given price, holding other factors constant.