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

question 125

Essay

Neal Corporation was initially formed as a C corporation with a calendar year end. Neal elected S corporation status, effective January 1, 2016. On December 31, 2015, Neal Corp. reported earnings and profits of $150,000. Beginning in 2016, 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? $$\begin{array} { | r | r | r | r | } \hline \text { Yea } & \begin{array} { r } \text { Gross Receipts (including)} \\\text { passive investment } \\\text { income) }\end{array} & \begin{array} { r } \text { Passive } \\\text { imvestment } \\\text { income }\end{array} & \begin{array} { r } \text { Corporate } \\\text { Eamings } \\\text { and Profits } \\\text { (end of year) }\end{array} \\\hline 2016 & \$ 400,000 & \$ 120,000 & \$ 140,000 \\\hline 2017 & \$ 300,000 & \$ 70,000 & \$ 100,000 \\\hline 2018 & \$ 500,000 & \$ 130,000 & \$ 70,000 \\\hline 2019 & \$ 400,000 & \$ 110,000 & \$ 40,000 \\\hline 2020 & \$ 600,000 & \$ 155,000 & \$ 1,000 \\\hline\end{array}$$

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Definitions:

Sympathetic Nervous

The sympathetic nervous system is part of the autonomic nervous system that prepares the body for physical activity and response to stress, fear, or emergency by triggering the fight or flight response.

Parasympathetic Nervous

Part of the autonomic nervous system responsible for conserving energy and slowing the heart rate, often referred to as the "rest and digest" system.

Autonomic Nervous

Refers to the part of the nervous system that controls involuntary actions of the body's glands, muscles of the internal organs, and blood vessels, including the heart.

Parasympathetic Nervous

Part of the autonomic nervous system responsible for conserving energy and slowing the heart rate, enhancing digestion and relaxation.