C is corrent. The requirement is to determine the amount of income that should be allocated to Darien Corp.’s short S year when its S election is terminated on February 1, 2013. When a corporation’s subchapter S election is terminated during a taxable year, its income for the entire year must be allocated between the resulting S short year and C short year. If no special election is made, the income must be allocated on a daily basis between the S and C short years. In this case the daily income equals $274,500/366 days = $750/day. Since the election was terminated on February 1, there would be 31 days in the S short year, and $750 x 31 = $23,250 of income would be allocated to the tax return for the S short year to be passed through and taxed to shareholders.
A is incorrect. Thirty-one days of income would be allocated to the S short year.
B is incorrect. Thirty-one days of income would be allocated to the S short year.
D is incorrect. Thirty-one days of income would be allocated to the S short year.
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