Question 1

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 2

Bellows Corporation,a calendar-year taxpayer,has been an S corporation for ten years.Last year,John sold all the Bellows stock to Micky.Payments for the stock are to be made over a five-year period.In March of next year,Micky fails to make the necessary payments and John repossesses the stock.During the time Micky holds the stock,Bellows Corporation revokes its S election.Can Bellows Corporation reelect S status?

Accepted Answer

Yes,Bellows Corporation can im

Question 3

Which one of the following special loss limitations apply to an S corporation?

Accepted Answer

A) at-risk rules 
B) passive activity limitation rules 
C) hobby loss rules 
D) All of the above apply. 
A) at-risk rules 
B) passive activity limitation rules 
C) hobby loss rules 
D) All of the above apply.

Question 4

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 5

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 6

S shareholders are allocated shares of income,gain,loss,deduction,and credit based on their number of shares of stock and period of time for which the stock is held.

Accepted Answer

A) True 
 B)False

Question 7

A C corporation was formed five years ago and is a fiscal-year taxpayer with a June 30 year-end.The C corporation wants to make an S election for its tax year beginning in the current year.The election must be made by ________ (assuming permission can be obtained to continue using the fiscal year from the IRS).

Accepted Answer

A) June 30 of the current year 
B) September 15 of the current year 
C) June 30 of the next year 
D) September 15 of the next year 
A) June 30 of the current year 
B) September 15 of the current year 
C) June 30 of the next year 
D) September 15 of the next year

Question 8

Zebra Corporation has always been an S corporation and is 100% owned by Paul.Paul has a basis of $40,000 in his Zebra stock at the beginning of the year.During the year,Zebra has an ordinary loss of $20,000 and a long-term capital gain of $10,000.In addition,Zebra Corporation distributed $55,000 in cash to Paul on December 1.Will the distribution cause Paul to recognize a gain? If so,what are its amount and character?

Accepted Answer

Basis adjustments for distributions made

Question 9

Caravan Corporation has always been an S corporation.Caravan Corporation is 100% owned by Alan Merten.On January 1,Alan has an adjusted basis of $50,000 in his Caravan stock.During the year,Caravan reports ordinary income of $60,000,a long-term capital gain of $10,000,and a charitable contribution of $5,000.Alan receives a $20,000 cash distribution from Caravan on December 1.What income does Alan recognize from the distribution,and what is his basis in the Caravan stock at year-end?

Accepted Answer

Basis = $50,000 + $60,000 + $1

Question 10

All shareholders must consent to the revocation of S status.

Accepted Answer

A) True 
 B)False

Question 11

Boxer Corporation,a C corporation,elects on June 30 of last year to make an S election for the current year.The net unrealized built-in gains at the beginning of the current year are $300,000.The net recognized built-in gains in the current year are $110,000.What is Boxer's built-in gains tax for the current year?

Accepted Answer

$110,000 ×

Question 12

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 13

Rocky Corporation,an S corporation,reports the following results for the current year:
   Rocky's AAA and accumulated E&P balances at the beginning of the year are $80,000 and $50,000,respectively.Rocky makes a $100,000 cash distribution to its sole shareholder on June 1 and a second $100,000 cash distribution on December 1.The shareholder's basis for Rocky stock on January 1 was $120,000.Discuss the tax consequences of these transactions.

Accepted Answer

The basis of the shareholder's stock is

Question 14

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 15

Woods Corporation has operated as a C corporation for the last seven years.The corporation has assets with a $500,000 adjusted basis and a $700,000 FMV.Liabilities are $200,000.Wolf Woods,a calendar-year taxpayer,owns all of the Woods Corporation stock.The corporation has a June 30 year-end and uses the accrual method of accounting.In order to reduce his total combined corporate and personal federal income tax liability,Wolf's CPA has told him to convert the corporation to S corporation status.Wolf would like to complete the conversion on the last day of the corporation's tax year.What tax issues should Wolf and his CPA consider with respect to the S election?

Accepted Answer

The questions listed below are based on

Question 16

A testamentary trust can be an S shareholder for two years,beginning on the date the stock transfers to the trust.

Accepted Answer

A) True 
 B)False

Question 17

Garret and Hans own all the stock of GH Corporation.Garret sells all his GH stock to Olga on February 12.The next day,GH makes an S election.For the election to apply to the current year,who must consent to the election?

Accepted Answer

Olga,Garret,and Hans must cons

Question 18

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 19

Which of the following would terminate a Subchapter S election?

Accepted Answer

A) Estate becomes a shareholder. 
B) Grantor trust becomes a shareholder. 
C) Voting trust becomes a shareholder. 
D) Partnership becomes a shareholder. 
A) Estate becomes a shareholder. 
B) Grantor trust becomes a shareholder. 
C) Voting trust becomes a shareholder. 
D) Partnership becomes a shareholder.

Question 20

Identify which of the following statements is true.

Accepted Answer

A) An S corporation may be subject to the corporate alternative minimum tax. 
B) Allocation of tax preference items for AMT generally occurs on a daily basis. 
C) An S corporation may be subject to the corporate alternative minimum tax when the corporation has accumulated E&P from prior C corporation tax years. 
D) All of the above are false. 
A) An S corporation may be subject to the corporate alternative minimum tax. 
B) Allocation of tax preference items for AMT generally occurs on a daily basis. 
C) An S corporation may be subject to the corporate alternative minimum tax when the corporation has accumulated E&P from prior C corporation tax years. 
D) All of the above are false.

Exam 11: S Corporations

Identify which of the following statements is false.

Which one of the following special loss limitations apply to an S corporation?

Identify which of the following statements is false.

S shareholders are allocated shares of income,gain,loss,deduction,and credit based on their number of shares of stock and period of time for which the stock is held.

All shareholders must consent to the revocation of S status.

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

Identify which of the following statements is true.

A testamentary trust can be an S shareholder for two years,beginning on the date the stock transfers to the trust.

Garret and Hans own all the stock of GH Corporation.Garret sells all his GH stock to Olga on February 12.The next day,GH makes an S election.For the election to apply to the current year,who must consent to the election?

If an S corporation inadvertently terminates its election,the IRS

Which of the following would terminate a Subchapter S election?

Identify which of the following statements is true.

Tax Research

Corporate Formations and Capital Structure

the Corporate Income Tax

Corporate Nonliquidating Distributions

Other Corporate Tax Levies

Corporate Liquidating Distributions

Corporate Acquisitions and Reorganizations

Consolidated Tax Returns

Partnership Formation and Operation

Special Partnership Issues

The Gift Tax

The Estate Tax

Income Taxation of Trusts and Estates

Administrative Procedures

Ustaxation of Foreign-Related Transactions

An Introduction to Taxation

Determination of Tax

Gross Income: Inclusions

Gross Income: Exclusions

Property Transactions: Capital Gains and Losses

Deductions and Losses

Itemized Deductions

Losses and Bad Debts

Employee Expenses and Deferred Compensation

Depreciation, cost Recovery, amortization, and Depletion

Accounting Periods and Methods

Property Transactions: Nontaxable Exchanges

Property Transactions: Sec1231 and Recapture

Special Tax Computation Methods, tax Credits, and Payment of Tax

Tax Research

Corporations

Partnerships and S Corporations

Taxes and Investment Planning

Filters