Question 1

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

Accepted Answer

A) True 
 B)False  True

Question 2

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. E

Question 3

An S corporation shareholder's stock basis includes his or her direct investments plus a ratable share of any corporate liabilities.

Accepted Answer

A) True 
 B)False  False

Question 4

Stock basis first is increased by income items, then __________by distributions, and finally decreased by ____________________.

Accepted Answer

The answer of Stock basis first is increased by income...

Question 5

Which statement is incorrect?

Accepted Answer

A)  S corporations are treated as corporations under state law. 
B)  S corporations are treated as partnerships for Federal income tax purposes. 
C)  Distributions of appreciated property are taxable to the S corporation. 
D)  All of these. 
A)  S corporations are treated as corporations under state law. 
B)  S corporations are treated as partnerships for Federal income tax purposes. 
C)  Distributions of appreciated property are taxable to the S corporation. 
D)  All of these.

Question 6

Which item does not appear on Schedule K of Form 1120S?

Accepted Answer

A)  Tax-exempt interest income. 
B)  Section 1231 gain. 
C)  Section 179 depreciation deduction. 
D)  Depreciation recapture income. 
E)  All of these appear on Schedule K. 
A)  Tax-exempt interest income. 
B)  Section 1231 gain. 
C)  Section 179 depreciation deduction. 
D)  Depreciation recapture income. 
E)  All of these appear on Schedule K.

Question 7

An S election is made on the shareholder's Form 2553.

Accepted Answer

A) True 
 B)False

Question 8

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 9

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.

Question 10

In the case of a complete termination of an S corporation interest, a________ tax year may occur.

Accepted Answer

The answer of In the case of a complete termination...

Question 11

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 12

Depreciation recapture income is a ________separately, nonseparately) computed amount.

Accepted Answer

The answer of Depreciation recapture income is a ________separately, nonseparately)...

Question 13

Which of the following, if any, can be eligible shareholders of an S corporation?

Accepted Answer

A)  A Roth IRA. 
B)  A partnership. 
C)  A non-U.S. corporation. 
D)  A nonqualifying trust. 
E)  None of these. 
A)  A Roth IRA. 
B)  A partnership. 
C)  A non-U.S. corporation. 
D)  A nonqualifying trust. 
E)  None of these.

Question 14

An S corporation recognizes a________ on any distribution of appreciated property.

Accepted Answer

The answer of An S corporation recognizes a________ on any...

Question 15

NOL carryforwards from C years can be used in an S corporation year against ordinary income.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following items, if any, has no effect on the stock basis of an S corporation shareholder?

Accepted Answer

A)  Operating income. 
B)  Short-term capital gain. 
C)  Advertising expenses. 
D)  Long-term capital loss. 
E)  The 20% QBI deduction. 
A)  Operating income. 
B)  Short-term capital gain. 
C)  Advertising expenses. 
D)  Long-term capital loss. 
E)  The 20% QBI deduction.

Question 17

A former spouse is treated as being in the same family as the individual to whom he or she was married for purposes of determining the number of S corporation shareholders.

Accepted Answer

A) True 
 B)False

Question 18

At the beginning of the year, the AAA of Rose, Inc. shows a balance of $682,000. During the year, the following items occur. Compute the end-of-year AAA balance. $$\begin{array} { l c } 
\text { Operating income } & \$ 452,000 \
\text { Interest income } & 6,550 \
\text { Dividend income } & 14,050 \
\text { Municipal bond interest income } & 12,000 \
\text { Short-term capital loss from sale of building } & 7,400 \
\text { Section } 179 \text { expense } & 6,500 \
\text { Charitable contributions } & 19,000 \
\text { Cash distributions } & 57,000 \
\text { Depreciation recapture } & 3,500
\end{array}$$

Accepted Answer

A)  $1,064,700. 
B)  $1,185,150. 
C)  $1,191,150. 
D)  $1,242,150. 
A)  $1,064,700. 
B)  $1,185,150. 
C)  $1,191,150. 
D)  $1,242,150.

Question 19

An estate may be a shareholder of an S corporation.

Accepted Answer

A) True 
 B)False

Question 20

An S election made before becoming a corporation is valid only beginning with the first 12-month tax year.

Accepted Answer

A) True 
 B)False

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

An S corporation shareholder's stock basis includes his or her direct investments plus a ratable share of any corporate liabilities.

Stock basis first is increased by income items, then by distributions, and finally decreased by __________.

Which statement is incorrect?

Which item does not appear on Schedule K of Form 1120S?

An S election is made on the shareholder's Form 2553.

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

In the case of a complete termination of an S corporation interest, a________ tax year may occur.

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

Depreciation recapture income is a ________separately, nonseparately) computed amount.

Which of the following, if any, can be eligible shareholders of an S corporation?

An S corporation recognizes a________ on any distribution of appreciated property.

NOL carryforwards from C years can be used in an S corporation year against ordinary income.

Which of the following items, if any, has no effect on the stock basis of an S corporation shareholder?

A former spouse is treated as being in the same family as the individual to whom he or she was married for purposes of determining the number of S corporation shareholders.

An estate may be a shareholder of an S corporation.

An S election made before becoming a corporation is valid only beginning with the first 12-month tax year.

Understanding and Working With the Federal Tax Law

The Deduction for Qualified Business Income for Pass-Through Entities

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Earnings and Profits and Dividend Distributions

Corporations: Redemptions and Liquidations

Corporations: Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships: Formation, Operations, and Basis

Partnerships: Distributions, Transfer of Interests, and Terminations

Comparative Forms of Doing Business

Taxes on the Financial Statements

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters

Exam 12: S Corporations

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

An S corporation shareholder's stock basis includes his or her direct investments plus a ratable share of any corporate liabilities.

Stock basis first is increased by income items, then __________by distributions, and finally decreased by ____________________.

Which statement is incorrect?

Which item does not appear on Schedule K of Form 1120S?

An S election is made on the shareholder's Form 2553.

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

In the case of a complete termination of an S corporation interest, a________ tax year may occur.

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

Depreciation recapture income is a ________separately, nonseparately) computed amount.

Which of the following, if any, can be eligible shareholders of an S corporation?

An S corporation recognizes a________ on any distribution of appreciated property.

NOL carryforwards from C years can be used in an S corporation year against ordinary income.

Which of the following items, if any, has no effect on the stock basis of an S corporation shareholder?

A former spouse is treated as being in the same family as the individual to whom he or she was married for purposes of determining the number of S corporation shareholders.

An estate may be a shareholder of an S corporation.

An S election made before becoming a corporation is valid only beginning with the first 12-month tax year.

Understanding and Working With the Federal Tax Law

The Deduction for Qualified Business Income for Pass-Through Entities

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Earnings and Profits and Dividend Distributions

Corporations: Redemptions and Liquidations

Corporations: Reorganizations

Consolidated Tax Returns

Taxation of International Transactions

Partnerships: Formation, Operations, and Basis

Partnerships: Distributions, Transfer of Interests, and Terminations

Comparative Forms of Doing Business

Taxes on the Financial Statements

Exempt Entities

Multistate Corporate Taxation

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Family Tax Planning

Income Taxation of Trusts and Estates

Filters

Stock basis first is increased by income items, then by distributions, and finally decreased by __________.