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

question 47

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:

Financial Intermediaries

are institutions that facilitate the channeling of funds between savers and borrowers, including banks, investment companies, and insurance companies.

Severe Penalties

Punishments or sanctions that are especially harsh or stringent, typically applied in legal contexts.

Financial Intermediaries

Institutions that facilitate the channeling of funds from savers to borrowers by intermediating between them.

Credit Needs

The requirement for borrowing funds to finance purchases, investments, or to bridge gaps in cash flow.