An S Corporation has $365,000 of non-separately stated income for Year 1. Shareholder A owned 100% of the stock from Jan 1 to June 30 (181 days). On July 1, Shareholder A sold 50% of their stock to Shareholder B. How much income is allocated to Shareholder A for Year 1 (using the per-day allocation method)?

Answer options:

$182,500

$273,750

$273,000

$365,000

How to approach this question

Full Answer

C.$273,000✓ Correct

IRC §1377(a). Income is allocated on a per-share, per-day basis. Daily income = $1,000. A's share: (181 days * 100% * $1,000) + (184 days * 50% * $1,000) = $181,000 + $92,000 = $273,000.

Common mistakes

Forgetting that the shareholder still owns 50% in the second half of the year.

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