Question 1

The LIFO recapture tax is a variation of the passive investment income penalty tax.

Accepted Answer

A) True 
 B)False

Question 2

An S corporation is subject to the following tax(es).

Accepted Answer

A)  Corporate income tax. 
B)  Built-in gains tax. 
C)  Alternative minimum tax. 
D)  None of these. 
A)  Corporate income tax. 
B)  Built-in gains tax. 
C)  Alternative minimum tax. 
D)  None of these.

Question 3

Shareholders owning a(n) of shares (voting and nonvoting) may
____________________ revoke an S election.

Accepted Answer

majority,

Question 4

The Section 179 expense deduction is a Schedule K item on the Form 1120S.

Accepted Answer

A) True 
 B)False

Question 5

A corporation may alternate between S corporation and C corporation status each year depending on which results in more tax savings.

Accepted Answer

A) True 
 B)False

Question 6

An estate may be a shareholder of an S corporation.

Accepted Answer

A) True 
 B)False

Question 7

Oxen Corporation incurs the following transactions. $\begin{array}{lr}
\text { Net income from operations } & \$ 100,000 \
\text { Interest income from savings account } & 3,000 \
\text { Long-term capital gain from sale of securities } & 10,000 \
\text { Short-term capital loss from sale of securities } & 4,000
\end{array}$ Oxen maintains a valid S election and does not distribute any assets (cash or property) to its sole shareholder, Megan. As a result, Megan must recognize (ignore 20% QBI deduction):

Accepted Answer

A)  Ordinary income of $103,000. 
B)  Ordinary income of $103,000 and long-term capital gain of $6,000. 
C)  Ordinary income of $103,000, long-term capital gain of $10,000, and $4,000 short-term capital loss. 
D)  Ordinary income of $109,000. 
A)  Ordinary income of $103,000. 
B)  Ordinary income of $103,000 and long-term capital gain of $6,000. 
C)  Ordinary income of $103,000, long-term capital gain of $10,000, and $4,000 short-term capital loss. 
D)  Ordinary income of $109,000.

Question 8

Nonseparately computed loss (increases, reduces) a S shareholder's stock basis.

Accepted Answer

The answer of Nonseparately computed loss (increases, reduces) a S...

Question 9

An S shareholder's stock basis is reduced by flow-through losses before accounting for distributions.

Accepted Answer

A) True 
 B)False

Question 10

The passive investment income of an S corporation includes net capital gains from the sale of stocks and securities.

Accepted Answer

A) True 
 B)False

Question 11

The maximum number of actual shareholders in an S corporation is:

Accepted Answer

A)  75. 
B)  100. 
C)  200. 
D)  Some other number. 
E)  Unlimited. 
A)  75. 
B)  100. 
C)  200. 
D)  Some other number. 
E)  Unlimited.

Question 12

Gene Grams is a 45% owner of a calendar year S corporation during the tax year. His beginning stock basis is
$230,000, and the S corporation reports the following items. $\begin{array}{lr}
\text { Ordinary income } & \$ 72,000 \
\text { Short-term capital gain } & 16,000 \
\S 1231 \text { loss } & 6,000 \
\text { Tax-exempt interest income } & 5,000
\end{array}$ Calculate Grams's stock basis at year-end.

Accepted Answer

The answer of Gene Grams is a 45% owner of...

Question 13

Identify a disadvantage of being an S corporation.

Accepted Answer

A)  Estates can be shareholders. 
B)  Losses flow through immediately to the shareholders. 
C)  Section 1202 treatment (qualified small business stock) is not available. 
D)  Tax-exempt income flows through as excludible to shareholders. 
E)  All of these are advantages of the S election. 
A)  Estates can be shareholders. 
B)  Losses flow through immediately to the shareholders. 
C)  Section 1202 treatment (qualified small business stock) is not available. 
D)  Tax-exempt income flows through as excludible to shareholders. 
E)  All of these are advantages of the S election.

Question 14

An S shareholder's stock basis can be reduced below zero.

Accepted Answer

A) True 
 B)False

Question 15

Depreciation recapture income is a Schedule K item on the Form 1120S.

Accepted Answer

A) True 
 B)False

Question 16

Amit, Inc., an S corporation, holds an AAA balance of $614,000 at the beginning of the tax year. During the year, the following items occur. $$\begin{array} { l r } 
\text { Operating income } & \$ 501,000 \
\text { Interest income } & 6,500 \
\text { Dividend income } & 13,020 \
\text { Municipal bond interest income } & 6,000 \
\text { Long-term capital loss from sale of investment land } & 7,400 \
\text { Section 179 depreciation deduction } & 6,000 \
\text { Charitable contributions } & 19,000 \
\text { Cash distributions } & 57,000
\end{array}$$ Amit's ending AAA balance is:

Accepted Answer

A)  $1,055,620. 
B)  $1,185,150. 
C)  $1,191,150. 
D)  $1,242,150. 
E)  Some other amount. 
A)  $1,055,620. 
B)  $1,185,150. 
C)  $1,191,150. 
D)  $1,242,150. 
E)  Some other amount.

Question 17

Liabilities affect the owner's basis differently in an S corporation than they do in a partnership.

Accepted Answer

A) True 
 B)False

Question 18

A distribution from the other adjustment account (OAA) is not taxable to an S shareholder.

Accepted Answer

A) True 
 B)False

Question 19

An S corporation's separately stated items generally are identical to those separately stated by
_________________________.

Accepted Answer

The answer of An S corporation's separately stated items generally...

Question 20

Which of the following items, if any, decreases an S corporation's AAA?

Accepted Answer

A)  Section 1231 loss. 
B)  Expenses related to tax-exempt income. 
C)  Depletion in excess of basis. 
D)  Distribution from earnings and profits. 
A)  Section 1231 loss. 
B)  Expenses related to tax-exempt income. 
C)  Depletion in excess of basis. 
D)  Distribution from earnings and profits.

Exam 22: S Corporations

The LIFO recapture tax is a variation of the passive investment income penalty tax.

An S corporation is subject to the following tax(es).

Shareholders owning a(n) of shares (voting and nonvoting) may ____________________ revoke an S election.

The Section 179 expense deduction is a Schedule K item on the Form 1120S.

A corporation may alternate between S corporation and C corporation status each year depending on which results in more tax savings.

An estate may be a shareholder of an S corporation.

Nonseparately computed loss (increases, reduces) a S shareholder's stock basis.

An S shareholder's stock basis is reduced by flow-through losses before accounting for distributions.

The passive investment income of an S corporation includes net capital gains from the sale of stocks and securities.

The maximum number of actual shareholders in an S corporation is:

Identify a disadvantage of being an S corporation.

An S shareholder's stock basis can be reduced below zero.

Depreciation recapture income is a Schedule K item on the Form 1120S.

Liabilities affect the owner's basis differently in an S corporation than they do in a partnership.

A distribution from the other adjustment account (OAA) is not taxable to an S shareholder.

An S corporation's separately stated items generally are identical to those separately stated by _________________________.

Which of the following items, if any, decreases an S corporation's AAA?

Understanding and Working With the Federal Tax Law

Working With the Tax Law

Computing the Tax

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: in General

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, Cost Recovery, Amortization, and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Investor Losses

Tax Credits and Payments

Property Transactions: Determination of Gain or Loss, Basis Considerations, and Nontaxable Exchanges

Property Transactions: Capital Gains and Losses, Section 1231, and Recapture Provisions

Taxing Business Income

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

Partnerships

Exempt Entities

Multistate Corporate Taxation

Taxation of International Transactions

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Income Taxation of Trusts and Estates

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