Barry Porter and Winnie Weeks are considering making an S election on March $1,2024,$ for their C corporation, Omniocular. However, first they want to consider the implications of the following information:

Winnie is a U$.$S$.$ citizen and resident.

Barry is a citizen of the United Kingdom but a resident of the United States.

Barry and Winnie each owns $50$ percent of the voting power in Omniocular. However, Barry's stock provides him with a claim on $60$ percent of the Omniocular assets in liquidation.

Omniocular was formed under Arizona state law, but it plans on eventually conducting some business in Mexico.

For the remainder of the problem, assume Omniocular made a valid S election effective January $1,2024.$ Barry and Winnie each owns $50$ percent of the voting power and has an equal claim on Omniocular's assets in liquidation. In addition, consider the following information:

Omniocular reports on a calendar tax year. Omniocular's earnings and profits as of December $31,2023,$ were $$55,000.$ Omniocular's $2023$ taxable income was $$15,000.$ Omniocular's assets at the end of $2023$ are as follows:

Omniocular Assets

December $31,2023$

Asset

Adjusted Basis

FMV

Cash

$ $50,000$

$ $50,000$

Accounts receivable

$20,000$

$20,000$

Investments in stocks and bonds

$700,000$

$700,000$

Investment in land

$90,000$

$100,000$

Inventory $($LIFO$)$

$80,000*$

$125,000$

Equipment

$40,000$

$35,000$

Totals

$ $980,000$

$ $1,030,000$

$*$$$110,000$ under FIFO accounting.

On March $31,2024,$ Omniocular sold the land for $$42,000.$ In $2024,$ Omniocular sold all the inventory it had on hand at the beginning of the year. This was the only inventory it sold during the year.

Other Income or Expense Items for $2024$

Sales revenue

$ $155,000$

Salary to owners

$(50,000)$

Employee wages

$(10,000)$

Depreciation expense

$(5,000)$

Miscellaneous expenses

$(1,000)$

Interest income

$40,000$

Qualified dividend income

$65,000$

Assume that if Omniocular were a C corporation for $2024,$ its taxable income would have been $$88,500.$

A$.$ How much LIFO recapture tax $($in total$)$ is Omniocular required to pay and when is the first installment due?

B$.$ How much built$-$in gains tax, if any, is Omniocular required to pay?

C$.$ How much excess net passive income tax, if any, is Omniocular required to pay?

D$.$ Assume Barry's basis in his Omniocular stock was $$40,000$ on January $1,2024.$ What is his stock basis on December $31,2024?$

For the following questions, assume that after electing S corporation status Barry and Winnie had a change of heart and filed an election to terminate Omniocular's S election, effective August $1,2025.$

In $2025,$ Omniocular reported the following income or expense items:

$$

January $1$July $31,2025(212$ days$)$

August $1$December $31,2025(153$ days$)$

January $1$December $31,2025$

Sales revenue

$ $80,000$

$ $185,000$

$ $265,000$

Cost of goods sold

$(40,000)$

$(20,000)$

$(60,000)$

Salaries to Barry and Winnie

$(60,000)$

$(40,000)$

$(100,000)$

Depreciation expense

$(7,000)$

$(2,000)$

$(9,000)$

Miscellaneous expenses

$(4,000)$

$(3,000)$

$(7,000)$

Interest income

$6,000$

$5,250$

$11,250$

Overall net income $($loss$)$

$ $(25,000)$

$ $125,250$

$ $100,250$

$$ F$.$ For tax purposes, how would you recommend Barry and Winnie allocate income between the short S corporation year and the short C corporation year if they would like to minimize double taxation of Omniocular's income?

$$ G$.$ Assume in part $($f$)$ that Omniocular allocates income between the short S and C corporation years in a way that minimizes the double taxation of its income. If Barry's stock basis in his Omniocular stock on January $1,2025,$ is $$50,000,$ what is his stock basis on December $31,2025?$

H$.$ When is the earliest tax year in which Omniocular can be taxed as an S corporation again?