Question 1

An S corporation may be voluntarily or involuntarily terminated.

Accepted Answer

A) True 
 B)False

Question 2

RGD Corporation was a C corporation from its inception in 2010 through 2013. However, it elected S corporation status effective January 1, 2014. RGD had $50,000 of earnings and profits at the end of 2013. RGD reported the following information for its 2014 tax year. $$\begin{array} { | l | r | } 
\hline \text { Description } & \text { Amount } \
\hline \text { Consulting revenue } & \mathbf { \$ 9 9 , 0 0 0 } \
\hline \text { Salary to owners } & ( 40,000 ) \
\hline \text { Employee wages } & ( 30,000 ) \
\hline \text { Depreciation expense } & ( 5,000 ) \
\hline \text { Municipal bond interest } & 6,000 \
\hline \text { Interest income } & 42,000 \
\hline \text { Dividend income } & \underline { 25,000 } \
\hline \text { Overall net income } & \mathbf { \$ 9 7 , 0 0 0 } \
\hline
\end{array}$$ What amount of excess net passive income tax is RGD liable for in 2014? (Round your answer for excess net passive income to the nearest thousand).

Accepted Answer

$10,500 (35% × $30,000). Passive investm

Question 3

Which of the following is a requirement to be an S corporation?

Accepted Answer

A)  be a domestic or foreign corporation 
B)  have only one class of stock 
C)  have fewer than 75 shareholders 
D)  have at least one corporate shareholder 
E)  None of these. 
A)  be a domestic or foreign corporation 
B)  have only one class of stock 
C)  have fewer than 75 shareholders 
D)  have at least one corporate shareholder 
E)  None of these.

Question 4

MWC is a C corporation that uses the accrual method of accounting. MWC made an S election, effective January, 1 of 2014. The following assets were owned by MWC on December 31, 2013. $$\begin{array} { | l | r | r | } 
\hline { \text { Asset } } & \begin{array} { c } 
\text { Fair Market } \
\text { Value (FMV) }
\end{array} & \begin{array} { c } 
\text { Adjusted basis } \
\text { (AB) }
\end{array} \
\hline \text { Cash } & \$ 40,000 & \$ 40,000 \
\hline \text { Accounts receivable } & 15,000 & 15,000 \
\hline \text { Inventory (FIFO) } & 20,000 & 25,000 \
\hline \text { Land } & \underline { 125,000 } & \underline { 100,000 } \
\hline \text { Totals } & \$ 200,000 & \$ 180,000 \
\hline
\end{array}$$ What is MWC's net unrealized built-in gain when it converts to an S corporation on January 1, 2014?

Accepted Answer

$20,000. The ($5,000) built-in

Question 5

Lamont is a 100% owner of JKL Corporation. JKL has been an S corporation since its inception in 2014. During 2016, JKL distributed $20,000 to Lamont. During 2016, JKL reported $5,000 of business income and no separately stated items. What is the amount and character of the gain, if any, Lamont must recognize in each of the following alternative scenarios? Also, what is Lamont's stock basis at the end of 2016 in each of the following scenarios?
a. Lamont's stock basis at the beginning of the year was $30,000.
b. Lamont's stock basis at the beginning of the year was $4,000.

Accepted Answer

Answer to part a: Lamont does not recogn

Question 6

S corporations offer the same legal protection to owners as C corporations.

Accepted Answer

A) True 
 B)False

Question 7

In general, an S corporation shareholder makes increasing adjustments to her basis first, followed by adjustments that decrease basis.

Accepted Answer

A) True 
 B)False

Question 8

During 2013, MVC operated as a C corporation. However, it made an election to be taxed as an S corporation effective January 1, 2014. MVC uses the accrual method of accounting and uses the LIFO method of accounting for its inventory. At the end of 2013 its inventory basis under the LIFO method was $63,000. If MVC had used the FIFO method of accounting for its inventory, it would have had a $70,000 basis in its inventory. Finally, MVC's regular taxable income in 2013 was $80,000. What amount of LIFO recapture tax must MVC pay? When must it pay the tax?

Accepted Answer

MVC must pay $2,380 [($70,000 FIFO inven

Question 9

Which of the following is prohibited from being an S corporation shareholder?

Accepted Answer

A)  Foreign citizens that are U.S. residents. 
B)  U.S. citizens. 
C)  Corporations. 
D)  51 unrelated individuals. 
E)  None of these. 
A)  Foreign citizens that are U.S. residents. 
B)  U.S. citizens. 
C)  Corporations. 
D)  51 unrelated individuals. 
E)  None of these.

Question 10

The IRS may consent to an early re-election of S corporation status after a termination under which of the following:

Accepted Answer

A)  The corporation is now owned more than 10 percent by shareholders who were not owners at the time of termination. 
B)  The corporation is now owned more than 60 percent by shareholders who were owners at the time of termination. 
C)  The termination was not reasonably within the control of the corporation or shareholders with a substantial interest in the corporation and was not part of a planned termination by the corporation or shareholders. 
D)  The corporation had only two ineligible shareholders at the termination date. 
E)  None of these. 
A)  The corporation is now owned more than 10 percent by shareholders who were not owners at the time of termination. 
B)  The corporation is now owned more than 60 percent by shareholders who were owners at the time of termination. 
C)  The termination was not reasonably within the control of the corporation or shareholders with a substantial interest in the corporation and was not part of a planned termination by the corporation or shareholders. 
D)  The corporation had only two ineligible shareholders at the termination date. 
E)  None of these.

Question 11

Separately stated items are tax items that are treated similarly for tax purposes as a shareholder's share of ordinary business income (loss).

Accepted Answer

A) True 
 B)False

Question 12

XYZ was formed as a calendar-year S corporation with Xavier, Yolinda, and Zach as equal shareholders. On September 15, 2014, XYZ's S election was terminated after Zach sold his XYZ shares (one-third of all shares) to his solely owned C Corporation Zach, Inc. Absent permission from the IRS, what is the earliest date XYZ may again elect to be taxed as an S corporation?

Accepted Answer

The answer of XYZ was formed as a calendar-year S...

Question 13

When an S corporation distributes appreciated property to its shareholders, the shareholders who receive the distributed property recognize their distributive share of the deemed gain.

Accepted Answer

A) True 
 B)False

Question 14

CB Corporation was formed as a calendar-year S corporation. Casey is a 60% shareholder and Bryant is a 40% shareholder. On September 30, 2014, Bryant sold his CB shares to Don. CB reported business income for 2014 as follows (assume that there are 365 days in the year): $$\begin{array} { | l | r | } 
\hline { \text { Period } } & { \text { Income } } \
\hline \text { January } 1 \text { through September } 30 \text { (273 days) } & \$ 200,000 \
\hline \text { October } 1 \text { through December } 31 \text { (92 days } ) & 530,000 \
\hline \text { January } 1 \text { through December } 31 & \$ 730,000 \
\hline
\end{array}$$ How much 2014 income is allocated to each shareholder if CB uses its normal accounting rules to allocate income to the specific periods in which it was actually earned?

Accepted Answer

Casey is allocated $438,000 of

Question 15

Which of the following is the correct order in which loss limitation rules are applied?

Accepted Answer

A)  basis rules 1st, at-risk rules 2nd, passive loss rules 3rd. 
B)  passive loss rules 1st, at-risk rules 2nd, basis rules 3rd. 
C)  basis rules 1st, passive loss rules 2nd, at-risk rules 3rd. 
D)  passive loss rules 1st, basis rules 2nd, at-risk rules 3rd. 
E)  None of these. 
A)  basis rules 1st, at-risk rules 2nd, passive loss rules 3rd. 
B)  passive loss rules 1st, at-risk rules 2nd, basis rules 3rd. 
C)  basis rules 1st, passive loss rules 2nd, at-risk rules 3rd. 
D)  passive loss rules 1st, basis rules 2nd, at-risk rules 3rd. 
E)  None of these.

Question 16

S corporations without earnings and profits from prior C corporation years are not subject to the excess net passive income tax.

Accepted Answer

A) True 
 B)False

Question 17

An S corporation shareholder's allocable share of business income that is a passive activity is considered net investment income for purposes of the Net Investment Income tax.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following statements is correct?

Accepted Answer

A)  The LIFO recapture tax precludes an S corporation from using the LIFO method. 
B)  The LIFO recapture tax is paid in five annual installments. 
C)  The LIFO recapture amount increases the corporation's adjusted basis in its inventory. 
D)  The LIFO recapture tax does not apply to S corporations with no earnings and profits from prior C corporation years. 
E)  None of these. 
A)  The LIFO recapture tax precludes an S corporation from using the LIFO method. 
B)  The LIFO recapture tax is paid in five annual installments. 
C)  The LIFO recapture amount increases the corporation's adjusted basis in its inventory. 
D)  The LIFO recapture tax does not apply to S corporations with no earnings and profits from prior C corporation years. 
E)  None of these.

Question 19

The same exact requirements for forming and contributing property govern S corporations and partnerships.

Accepted Answer

A) True 
 B)False

Question 20

Bobby T (75% owner) would like to terminate the S corporation status for DJ, Inc. Dallas (5% owner) does not want to terminate the S corporation status. Bobby T can terminate the S status for DJ, Inc. without Dallas' consent.

Accepted Answer

A) True 
 B)False

An S corporation may be voluntarily or involuntarily terminated.

Which of the following is a requirement to be an S corporation?

S corporations offer the same legal protection to owners as C corporations.

In general, an S corporation shareholder makes increasing adjustments to her basis first, followed by adjustments that decrease basis.

Which of the following is prohibited from being an S corporation shareholder?

The IRS may consent to an early re-election of S corporation status after a termination under which of the following:

Separately stated items are tax items that are treated similarly for tax purposes as a shareholder's share of ordinary business income (loss).

When an S corporation distributes appreciated property to its shareholders, the shareholders who receive the distributed property recognize their distributive share of the deemed gain.

Which of the following is the correct order in which loss limitation rules are applied?

S corporations without earnings and profits from prior C corporation years are not subject to the excess net passive income tax.

An S corporation shareholder's allocable share of business income that is a passive activity is considered net investment income for purposes of the Net Investment Income tax.

Which of the following statements is correct?

The same exact requirements for forming and contributing property govern S corporations and partnerships.

Bobby T (75% owner) would like to terminate the S corporation status for DJ, Inc. Dallas (5% owner) does not want to terminate the S corporation status. Bobby T can terminate the S status for DJ, Inc. without Dallas' consent.

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Investments

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

State and Local Taxes

The US Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning of the Cfa Institute

Filters

Exam 22: S Corporations

An S corporation may be voluntarily or involuntarily terminated.

Which of the following is a requirement to be an S corporation?

S corporations offer the same legal protection to owners as C corporations.

In general, an S corporation shareholder makes increasing adjustments to her basis first, followed by adjustments that decrease basis.

Which of the following is prohibited from being an S corporation shareholder?

The IRS may consent to an early re-election of S corporation status after a termination under which of the following:

Separately stated items are tax items that are treated similarly for tax purposes as a shareholder's share of ordinary business income (loss).

When an S corporation distributes appreciated property to its shareholders, the shareholders who receive the distributed property recognize their distributive share of the deemed gain.

Which of the following is the correct order in which loss limitation rules are applied?

S corporations without earnings and profits from prior C corporation years are not subject to the excess net passive income tax.

An S corporation shareholder's allocable share of business income that is a passive activity is considered net investment income for purposes of the Net Investment Income tax.

Which of the following statements is correct?

The same exact requirements for forming and contributing property govern S corporations and partnerships.

Bobby T (75% owner) would like to terminate the S corporation status for DJ, Inc. Dallas (5% owner) does not want to terminate the S corporation status. Bobby T can terminate the S status for DJ, Inc. without Dallas' consent.

An Introduction to Tax

Tax Compliance, the Irs, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Exemptions, and Filing Status

Gross Income and Exclusions

Individual Deductions

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Investments

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Entities Overview

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

State and Local Taxes

The US Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning of the Cfa Institute

Filters