Orange, Inc., a calendar year corporation in Clemson

S Corp NOL Carryover and Estate Gift Tax Consequences Questions

1. Orange, Inc., a calendar year corporation in Clemson, South Carolina, elects S corporation status for 2019. The company generated a $74,000 NOL in 2018 and another NOL of $43,000 in 2019. Orange recorded no other transactions for the year.

At all times in 2018 and 2019, the stock of the corporation is owned by the same four shareholders, each owning 25% of the stock. Pete, one of the shareholders, holds a $6,020 basis in the Orange stock at the beginning of 2019. Identify the Federal income tax issues that Pete faces.

2. In each of the independent situations below, determine the Federal estate and gift tax consequences of what has occurred. (In all cases, assume that Gene and Mary are married and that Ashley is their daughter.)

a. Mary purchases an insurance policy on Gene’s life and designates Ashley as the beneficiary. Mary dies first, and under her will, the policy passes to Gene.

b. Gene purchases an insurance policy on Mary’s life and designates Ashley as the beneficiary. Ashley dies first one year later.

c. Assume the same facts as in part (b). Two years later, Mary dies. Because Gene has not designated a new beneficiary, the insurance proceeds are paid to him.

d. Gene purchases an insurance policy on his life and designates Mary as the beneficiary. Gene dies first, and the policy proceeds are paid to Mary.