Piper, Inc., an S corporation in Chesapeak, Virginia, has revenues of $400,000, taxable interest of $380,000,...

Piper, Inc., an S corporation in Chesapeak, Virginia, has revenues of $400,000, taxable interest of $380,000, operating expenses of $250,000, and deductions attributable to the interest income of $140,000. Calculate any passive investment income penalty tax payable by this corporation.

Expert Solution

Note: U/s 1375 passive investment income penalty tax?, applicable only if S-Corp has Accumulated E&P and its Passive Investment income exceeds 25% of its gross receipts, in the given question information about AEP is not given, so it is assumed that it has AEP. if no AEP no penalty tax. Passive investment income includes gross receits from dividends, rent, annuity etc.
The passive investment income of S Corporation is $380,000
Total gross receipts of the company are as under:
Operating revenues	$400,000
Interest income	$380,000
Total gross receipts	$780,000

Excess net passive income is the excess of pasive investment income than 25% of the gross receipts.
[$380,000-(25% of $780,000)] = 185000
Net passive income= Interest income-deduction attributatble to interest
'= $380,000-$140,000
'=$240,000

ENPI=(Passive investment income in excess of 25% of gross receipts/Passive investment of the year)×Net passive investment income of the year

ENPI={[$185,000/$380,000}×$240,000
'=$116,842

Tax on passive investment income would be $40,895.
S Corporation passive investment income tax would be $40,895 ($116,842×35%).

ekkarill92 answered 1 year ago

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