Question 1

Identify which of the following statements is true.

Accepted Answer

A) An S corporation should have a buy-sell agreement to guard itself against an ill-advised sale of its stock. 
B) The terms "small business corporation" and "S corporation" are synonymous. 
C) A regular corporation has common and preferred stock outstanding on January 1.On January 2,the preferred stock is canceled in a recapitalization,leaving only common stock outstanding.The corporation can make an S election for this tax year. 
D) All of the above are false. 
A) An S corporation should have a buy-sell agreement to guard itself against an ill-advised sale of its stock. 
B) The terms "small business corporation" and "S corporation" are synonymous. 
C) A regular corporation has common and preferred stock outstanding on January 1.On January 2,the preferred stock is canceled in a recapitalization,leaving only common stock outstanding.The corporation can make an S election for this tax year. 
D) All of the above are false.

Question 2

The passive income test relating to an S corporation election is applied

Accepted Answer

A) daily. 
B) monthly. 
C) quarterly. 
D) annually. 
A) daily. 
B) monthly. 
C) quarterly. 
D) annually.

Question 3

Krause Corporation makes an S election,believing that it has no current or accumulated E&P.However,after an IRS audit,Krause is found to have failed the passive investment income test for three consecutive years and also to have a Subchapter C E&P balance from its three pre-election tax years.The IRS will

Accepted Answer

A) automatically terminate the election and Krause cannot reelect for a 5-year time period. 
B) retroactively revoke the election to the first day on which it was effective and Krause will not be able to reelect. 
C) treat the error as such and allow the election to continue unbroken. 
D) likely treat the termination as inadvertent and will probably approve a continued S election if the corporation distributes the Subchapter C E&P. 
A) automatically terminate the election and Krause cannot reelect for a 5-year time period. 
B) retroactively revoke the election to the first day on which it was effective and Krause will not be able to reelect. 
C) treat the error as such and allow the election to continue unbroken. 
D) likely treat the termination as inadvertent and will probably approve a continued S election if the corporation distributes the Subchapter C E&P.

Question 4

Helmut and Sergei own all the stock of Zappo Corporation,a calendar-year domestic corporation.On January 30 of the current year,Sergei sells his entire interest in the Zappo stock to Nils.All three individuals are U.S.citizens.Can an S election be made for the current year?

Accepted Answer

A) not for the current year but for the next year 
B) Yes,if Helmut and Nils agree to report all of the corporation's income for the entire year 
C) Yes,if Sergei will also join in the election with Helmut and Nils 
D) Yes,if Helmut and Nils agree to file a short-period return and Sergei also agrees to the return 
A) not for the current year but for the next year 
B) Yes,if Helmut and Nils agree to report all of the corporation's income for the entire year 
C) Yes,if Sergei will also join in the election with Helmut and Nils 
D) Yes,if Helmut and Nils agree to file a short-period return and Sergei also agrees to the return

Question 5

Which of the following conditions will not cause an S election to be terminated?

Accepted Answer

A) exceeding the 100-shareholder limit 
B) creating a second class of stock having a dividend preference 
C) selecting an improper tax year 
D) failing to file a timely tax return 
A) exceeding the 100-shareholder limit 
B) creating a second class of stock having a dividend preference 
C) selecting an improper tax year 
D) failing to file a timely tax return

Question 6

Which of the following statements about stock ownership is not correct?

Accepted Answer

A) A C corporation can own stock of an S corporation. 
B) An S corporation can own stock of a C corporation. 
C) A tax-exempt charity can own stock of an S corporation. 
D) An S corporation can own stock of a Qualified Subchapter S Subsidiary. 
A) A C corporation can own stock of an S corporation. 
B) An S corporation can own stock of a C corporation. 
C) A tax-exempt charity can own stock of an S corporation. 
D) An S corporation can own stock of a Qualified Subchapter S Subsidiary.

Question 7

Identify which of the following statements is false.

Accepted Answer

A) A C corporation short-year income tax liability must be determined on an annualized basis. 
B) If the termination of an S election is considered to be inadvertent,then the election is permitted to continue in place as if the termination had never occurred. 
C) If an S election is terminated and the termination is not considered to be inadvertent,a ten-tax-year waiting period is required before making a new election. 
D) A corporation can obtain relief for a late S election if the IRS consents. 
A) A C corporation short-year income tax liability must be determined on an annualized basis. 
B) If the termination of an S election is considered to be inadvertent,then the election is permitted to continue in place as if the termination had never occurred. 
C) If an S election is terminated and the termination is not considered to be inadvertent,a ten-tax-year waiting period is required before making a new election. 
D) A corporation can obtain relief for a late S election if the IRS consents.

Question 8

Jeff owns 50% of an S corporation's stock with a basis in his stock of $50,000 on January 1.In addition,the S corporation owes Jeff $30,000 on January 1.The debt has a basis of $30,000 and is evidenced by a note.The S corporation reports an ordinary loss of $150,000 for the current year.The next year,it reports ordinary income of $20,000.On January 1 of the third year,the note is repaid.Due to the repayment of the note,Jeff must report what?

Accepted Answer

The answer of Jeff owns 50% of an S corporation's...

Question 9

Identify which of the following statements is true.

Accepted Answer

A) A partnership can be an S corporation shareholder. 
B) A nonresident alien can be an S corporation shareholder. 
C) An S corporation can have more than 100 shareholders,since families are treated as a single shareholder. 
D) All of the above are false. 
A) A partnership can be an S corporation shareholder. 
B) A nonresident alien can be an S corporation shareholder. 
C) An S corporation can have more than 100 shareholders,since families are treated as a single shareholder. 
D) All of the above are false.

Question 10

Identify which of the following statements is true.

Accepted Answer

A) The natural business year for fiscal-year election purposes is any tax year that ends within six months after the peak period of business. 
B) Section 444 permits an S corporation to elect to use a fiscal year other than a permitted year. 
C) A new corporation that is 100% owned by Johnny Blake,a cash method of accounting taxpayer,makes an S election for its initial tax year.The S corporation must also elect to use the cash method of accounting as its overall accounting method. 
D) All of the above are false. 
A) The natural business year for fiscal-year election purposes is any tax year that ends within six months after the peak period of business. 
B) Section 444 permits an S corporation to elect to use a fiscal year other than a permitted year. 
C) A new corporation that is 100% owned by Johnny Blake,a cash method of accounting taxpayer,makes an S election for its initial tax year.The S corporation must also elect to use the cash method of accounting as its overall accounting method. 
D) All of the above are false.

Question 11

Cactus Corporation,an S corporation,had accumulated earnings and profits of $100,000 at the beginning of 2017.Tex and Shirley each own 50% of the stock and have a basis in their stock of $50,000 on January 1,2017.Cactus does not make any distributions during 2009,but had $200,000 of ordinary income.In 2018,ordinary income was $100,000 and distributions were $100,000.What is Tex's basis at January 1,2019?

Accepted Answer

A) $100,000 
B) $150,000 
C) $200,000 
D) $250,000 
A) $100,000 
B) $150,000 
C) $200,000 
D) $250,000

Question 12

Dixon Corporation was incorporated on January 1,2005.The corporation made its S election on April 1,2008.The corporation retains an E&P balance from its C corporation days.Which one of the following current-year income and expense items is not included in Dixon Corporation's Accumulated Adjustments Account?

Accepted Answer

A) ordinary income or loss 
B) tax-exempt bond interest income 
C) long-term capital gains and losses 
D) amortization of organizational expenditures 
A) ordinary income or loss 
B) tax-exempt bond interest income 
C) long-term capital gains and losses 
D) amortization of organizational expenditures

Question 13

Identify which of the following statements is false.

Accepted Answer

A) The election form can be signed by a person authorized to sign the S corporation tax return. 
B) An S election is filed by the corporation by using Form 2553 on or before the due date (without regard to any extensions)for the corporate tax return for the tax year in question. 
C) An S corporation must file a tax return for any year in which the S corporation is in existence. 
D) The IRS can grant extensions of time of filing shareholder consents to the S election. 
A) The election form can be signed by a person authorized to sign the S corporation tax return. 
B) An S election is filed by the corporation by using Form 2553 on or before the due date (without regard to any extensions)for the corporate tax return for the tax year in question. 
C) An S corporation must file a tax return for any year in which the S corporation is in existence. 
D) The IRS can grant extensions of time of filing shareholder consents to the S election.

Question 14

If an S corporation inadvertently terminates its election,the IRS

Accepted Answer

A) may permit the corporation to report as an S corporation even for the period that includes the termination date. 
B) will not permit the corporation to restore its S election until the completion of a five-year waiting period. 
C) will permit restoration of the S election only if the event causing the termination was not within the control of the corporation. 
D) will permit restoration of the S election if a majority of the shareholders consent to the reinstatement. 
A) may permit the corporation to report as an S corporation even for the period that includes the termination date. 
B) will not permit the corporation to restore its S election until the completion of a five-year waiting period. 
C) will permit restoration of the S election only if the event causing the termination was not within the control of the corporation. 
D) will permit restoration of the S election if a majority of the shareholders consent to the reinstatement.

Question 15

Even if the termination of an S election is considered to be inadvertent,the election to terminate is irrevocable.

Accepted Answer

A) True 
 B)False

Question 16

All shareholders must consent to the revocation of S status.

Accepted Answer

A) True 
 B)False

Question 17

Cactus Corporation,an S Corporation,had accumulated earnings and profits of $100,000 at the beginning of 2018.Tex and Shirley each own 50% of the stock.Cactus does not make any distributions during 2018,but had $200,000 of ordinary income.In 2019,ordinary income was $100,000 and distributions were $100,000.What is Tex's ordinary income for 2018?

Accepted Answer

A) $0 
B) $50,000 
C) $100,000 
D) $200,000 
A) $0 
B) $50,000 
C) $100,000 
D) $200,000

Question 18

Identify which of the following statements is true.

Accepted Answer

A) Beach Corporation,an S corporation,has gross receipts of $240,000; taxable income of $120,000; passive investment income of $100,000; and expenses directly attributable to the passive investment income of $20,000.The corporation's excess net passive income is $32,000. 
B) The built-in gains tax applicable to S corporations can be avoided if the property is held for ten years. 
C) An S corporation generally will not owe the built-in gains tax if the corporation has never been a C corporation. 
D) All of the above are true. 
A) Beach Corporation,an S corporation,has gross receipts of $240,000; taxable income of $120,000; passive investment income of $100,000; and expenses directly attributable to the passive investment income of $20,000.The corporation's excess net passive income is $32,000. 
B) The built-in gains tax applicable to S corporations can be avoided if the property is held for ten years. 
C) An S corporation generally will not owe the built-in gains tax if the corporation has never been a C corporation. 
D) All of the above are true.

Question 19

Identify which of the following statements is false.

Accepted Answer

A) Randy is a shareholder in an S corporation.His stock basis is $10,000 and his basis in a loan he made to the corporation is $3,000.Randy's share of the corporation's ordinary loss for the current year is $11,000.Ignoring the at-risk and passive activity limitations,Randy can deduct the loss in full. 
B) A shareholder's S corporation stock basis will increase when the shareholder acts as guarantor on a corporate indebtedness. 
C) A shareholder's ratable share of the S corporation's ordinary loss reduces the adjusted basis of his/her S corporation stock.Once the basis of the stock is reduced to zero,any loss-passthrough that remains reduces the basis of S corporation debts that are owed to the shareholder. 
D) Debt basis is restored before stock basis. 
A) Randy is a shareholder in an S corporation.His stock basis is $10,000 and his basis in a loan he made to the corporation is $3,000.Randy's share of the corporation's ordinary loss for the current year is $11,000.Ignoring the at-risk and passive activity limitations,Randy can deduct the loss in full. 
B) A shareholder's S corporation stock basis will increase when the shareholder acts as guarantor on a corporate indebtedness. 
C) A shareholder's ratable share of the S corporation's ordinary loss reduces the adjusted basis of his/her S corporation stock.Once the basis of the stock is reduced to zero,any loss-passthrough that remains reduces the basis of S corporation debts that are owed to the shareholder. 
D) Debt basis is restored before stock basis.

Question 20

Identify which of the following statements is true.

Accepted Answer

A) The overall S corporation loss limitation equals the shareholder's adjusted basis for his/her S corporation stock plus his/her ratable share of all S corporation liabilities. 
B) The loss pass-throughs from an S corporation may produce a net operating loss for the shareholder. 
C) An S corporation shareholder can increase the adjusted basis of his/her stock by any indebtedness owed the shareholder by the S corporation. 
D) All of the above are false. 
A) The overall S corporation loss limitation equals the shareholder's adjusted basis for his/her S corporation stock plus his/her ratable share of all S corporation liabilities. 
B) The loss pass-throughs from an S corporation may produce a net operating loss for the shareholder. 
C) An S corporation shareholder can increase the adjusted basis of his/her stock by any indebtedness owed the shareholder by the S corporation. 
D) All of the above are false.

Exam 11: S Corporations

Identify which of the following statements is true.

The passive income test relating to an S corporation election is applied

Helmut and Sergei own all the stock of Zappo Corporation,a calendar-year domestic corporation.On January 30 of the current year,Sergei sells his entire interest in the Zappo stock to Nils.All three individuals are U.S.citizens.Can an S election be made for the current year?

Which of the following conditions will not cause an S election to be terminated?

Which of the following statements about stock ownership is not correct?

Identify which of the following statements is false.

Identify which of the following statements is true.

Identify which of the following statements is true.

Identify which of the following statements is false.

If an S corporation inadvertently terminates its election,the IRS

Even if the termination of an S election is considered to be inadvertent,the election to terminate is irrevocable.

All shareholders must consent to the revocation of S status.

Identify which of the following statements is true.

Identify which of the following statements is false.

Identify which of the following statements is true.

Tax Research

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