discuss in relation to the S-Corporations, the tax on excess net passive income.

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Expert Solution

Excess net passive income is a corporate-level tax on the passive income earned by an S corporation.

If a corporation has always been an S corporation, the excess net passive income tax does not apply.

Excess net passive income tax applies to an S corporation only if:

1. The corporation has accumulated earnings and profits at the close of its tax year.

2. The corporation has passive investment income for the tax year in excess of 25% of gross receipts.

3. The corporation has excess net passive income.

The tax on excess net passive income(ENPI) is calculated as follows:

ENPI= NPI × [PII - (0.25× GR)] ÷ PII

NPI = Net Passive Income is passive investment income, reduced by directly- connected deductions.

PII = Passive investment income includes gross receipts derived from royalties, rents, dividends, interest, and annuities.

GR = Gross receipts includes amount received for sale of property, investment, and gains(but not losses) from sale of securities irrespective of date sold.

ekkarill92 answered 1 year ago

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