Let's now apply these concepts to Sunchaser Shakery.

Sunchaser Shakery is a calendar year accrual-basis S corporation

with the following items this year.

Gross receipts of $300,000,

interest income of $12,000,

rental income of $25,000,

cost of goods sold of $127,000,

net long-term capital gain of $17,000,

and compensation paid to shareholder of $10,000.

And the question asked,

what is the non-separately stated income amount?

So recall that items are separately stated if they're

separately treated at the shareholder level.

So the items listed here that are separately stated are

similar to those that would be separately stated in a partnership,

which would be interest, rental income,

and net long-term capital gains.

So the non-separately stated items would be

the gross receipts of $300,000,

cost of goods sold of $127,000,

and the compensation of $10,000.

Therefore, the amount of non-separately stated income is $163,000.

Sunchaser Shakery, an S Corporation,

was owned equally by Nicholas and Emily.

During the year, Sunchaser had ordinary income of

$183,000 and net long-term capital gain of $91,500,

and charitable contributions of $27,450.

What is the amount of ordinary income, capital gain,

and charitable contribution from Sunchaser that Emily and

Nicholas must each report on their tax returns?

So, recall that each shareholder of an S corporation

must report their share of the corporation's ordinary income.

As 50 percent partners,

Nicholas and Emily will each report 50 percent of the corporation's ordinary income.

So the corporation has $183,000 of ordinary income.

They're each 50 percent partner,

so each will report $91,500 of ordinary income on their tax returns.

In terms of separately stated items,

we have capital gains.

These pass through separately to Nicholas and Emily so that it retains

their special character, 50 percent partners.

So of the $91,500 of capital gains,

each will report $45,750,

and for the charity,

it will also pass through separately $27,450 times 50 percent.

Each will report $13,725 on their individual returns respectively.

Sunchaser Shakery Corporation was owned

entirely by Nicholas from January 1st to September 30th,

at which time he sold his entire interest to Emily.

During the year, Sunchaser reported ordinary income of $146,000.

How much income should be reported by Nicholas and Emily assuming

a valid Subchapter S election was in effect at all times.

So, recall that section 1366A provides that

each shareholder shall include their pro-rata share of corporate income,

and another code section, section 1377A,

defines pro-rata share as a taxpayer share of

corporate income determined on a per-day basis.

So, we actually have to get out the calendar on this one.

So Nicolas owned the shares from January through September,

and I've already done the hard part for you,

and that's 273 days.

Emily on the shares from October through December,

which is 92 days,

and the day of transfer goes to the transfer or by definition.

So the ordinary income of $146,000,

we need to figure out what is the per-day amount?

So 365 days in a normal year.

So we calculate $400 per day,

so we can now compute the amount of income for each person.

So Nicholas owns the shares 273 days times $400 per day.

He will report $109,200 with the difference going to Emily or 92 days worth,

which equates to $36,800.