Atlantis Corporation owns a fleet of business jets which it leases

| June 14, 2018

S Corporations: Terminations of S Status1. Atlantis Corporation owns a fleet of business jets which it leases to its various corporatecustomers. The company provides its customers with the aircraft, crew, and fuel Atlantis isresponsible for the repairs and maintenance of the airplanes. In addition, Atlantis ownsseveral airplane hangars which it leases on a net monthly basis to customers who own theirown aircraft.Atlantis elected S status 2 years ago, but it has exceeded the 25% passive income limit forboth years. This year it anticipates a large loss because of accelerated depreciation on theaircraft.Upon reviewing the company’s income statement for the current year ended (Year 3) younote that Atlantis has the following gross income.Rental IncomeAircraft $1,575,000Hangars 425,000Gross income $2,000,000Based upon the gross income Atlantis will report, will the corporation be a qualified S corporation for year 4? Explain.2. Pacifica, a calendar year taxpayer, has been an S corporation since 1985. On December 1, 20CY, Miss Sea, one of 5 shareholders, sells her 10% interest in Pacifica to Ms Wang, anon-resident alien.a. What effect does the sale have on Pacifica?b. Would your answer to (a) change if Wang sells the Pacifica stock to Mr. Beach (a UScitizen) on February 1, 20NY?

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