Question

Clampett, Incorporated, has been an S corporation since its inception. On July 15, 2024, Clampett, Incorporated, distributed $50,000 to J.D. His basis in his Clampett, Incorporated, stock on January 1, 2024, was $45,000. For 2024, J.D. was allocated $10,000 of ordinary income from Clampett, Incorporated, and no separately stated items. What is the total amount of income J.D. recognizes related to Clampett, Incorporated, in 2024?

A. 60,000
B. 50,000
C. 20,000
D. 10,000
E. None of the choices are correct.

Answer 1

J.D. would recognize a total income of $15,000 in 2024, which includes $10,000 of ordinary income and $5,000 as the taxable portion of the distribution. Since this is not an option provided, the correct answer is 'None of the choices are correct'.

Step-by-step explanation:

The total amount of income J.D. recognizes related to Clampett, Incorporated, in 2024 is the sum of the ordinary income allocated to him and the non-taxable portion of the distribution he received. J.D. was allocated $10,000 of ordinary income.

Furthermore, the distribution he received is only taxable to the extent that it exceeds his stock basis. His stock basis was $45,000 on January 1, 2024, while he received a distribution of $50,000. The $5,000 excess ($50,000 distribution - $45,000 basis) is a taxable gain. Therefore, the total income J.D. would recognize for 2024 would be the $10,000 of ordinary income plus the $5,000 taxable portion of the distribution, which equals $15,000. However, this is not one of the provided options, implying that the correct answer is none of the choices are correct (Option E).