Question 1

Tax-exempt interest earned by an S corporation is not reported to its shareholders because it is excluded from the shareholders' gross income.

Accepted Answer

A) True 
 B)False

Question 2

Which one of the following special loss limitations applies 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.

Question 3

Identify which of the following statements is true.

Accepted Answer

A)  Convertible debt issues might be considered "stock" for purposes of the S corporation single class of stock requirement. 
B)  The S election must be made no later than the fifteenth day of the fourth month of the tax year for which the election is to be effective. 
C)  A majority of shareholders must consent to the S corporation election. 
D)  All of the above are false.

Question 4

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.

Question 5

Which one of the following is not one of the corporation-related requirements for S corporation status?

Accepted Answer

A)  The corporation must be a domestic corporation. 
B)  The corporation must not have any foreign-sourced income. 
C)  The corporation must not be an "ineligible" corporation. 
D)  The corporation must have only one class of stock.

Question 6

Shamrock Corporation has two classes of common stock outstanding. The Class A and Class B common stock give the shareholders identical rights and interests in the profits and assets of the corporation. Class A has one vote per share. Class B is nonvoting. Can Shamrock Corporation make an S corporation election?

Accepted Answer

The answer of Shamrock Corporation has two classes of common...

Question 7

An S corporation is permitted to claim

Accepted Answer

A)  the dividends-received deduction. 
B)  a personal exemption. 
C)  a deduction based on the amortization of organizational expenditures. 
D)  a net operating loss.

Question 8

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.

Question 9

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

The answer of Zebra Corporation has always been an S...

Question 10

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 answer of Woods Corporation has operated as a C...

Question 11

Power Corporation reports the following results:
Service income (not passive income) $40,000
Dividend income 30,000
Interest income 60,000
Passive income-related expenses 20,000
Other expenses 50,000
At the end of the year, Power's Subchapter C E&P is $50,000. What is Power Corporation's excess net passive income and its excess net passive income tax for the year?

Accepted Answer

The answer of Power Corporation reports the following results:
Service income...

Question 12

Identify which of the following statements is true.

Accepted Answer

A)  Long-term capital gains may be subject to double taxation if the gains are subject to both the excess net passive income tax rules and the built-in gains tax rules. 
B)  Special allocations of ordinary income or loss and separately stated items that are available for partnerships are also permitted with S corporations. 
C)  When an S corporation's shares are sold by a shareholder during a tax year, the transferee's share of the earnings is reported from the day after the transfer date through the end of the tax year. 
D)  All of the above are false.

Question 13

Mary, a U.S. citizen, owned 25% of the stock of Floran Corporation, an electing S corporation. At the time of her death, the Floran stock may go to all the following without affecting the S election except

Accepted Answer

A)  her estate. 
B)  a testamentary trust. 
C)  a small business trust. 
D)  a charitable remainder unitrust.

Question 14

Shanghai Corporation was organized and elected S status in the current year. How much passive investment income can Shanghai earn and retain its S status?

Accepted Answer

A)  none 
B)  80% of gross receipts 
C)  50% of gross receipts 
D)  no limit

Question 15

Train Corporation is an S corporation that is owned equally by Carlos and Diane at the beginning of the year. On April 21 (the 111th day of Train's tax year) of the current year, Carlos sells all of his Train Corporation stock to Andre. How many days will be used when computing Carlos's share of S corporation income for this year (a non-leap year), assuming that a special income allocation election is not made?

Accepted Answer

A)  110 
B)  111 
C)  254 
D)  255

Question 16

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

Question 17

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.

Question 18

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.

Question 19

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.

Question 20

Robert Elk paid $100,000 for all of the single class of stock of Elkom Corporation, an electing S corporation, when incorporated in January Year 1. Elkom's operating results and dividend distribution are as follows:
  What is Elk's basis for his Elkom stock on December 31 of 2019?

Accepted Answer

The answer of Robert Elk paid $100,000 for all of...

Exam 11: S Corporations

Tax-exempt interest earned by an S corporation is not reported to its shareholders because it is excluded from the shareholders' gross income.

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

Identify which of the following statements is true.

If an S corporation inadvertently terminates its election, the IRS

Which one of the following is not one of the corporation-related requirements for S corporation status?

An S corporation is permitted to claim

Identify which of the following statements is true.

Identify which of the following statements is true.

Mary, a U.S. citizen, owned 25% of the stock of Floran Corporation, an electing S corporation. At the time of her death, the Floran stock may go to all the following without affecting the S election except

Shanghai Corporation was organized and elected S status in the current year. How much passive investment income can Shanghai earn and retain its 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.

Robert Elk paid $100,000 for all of the single class of stock of Elkom Corporation, an electing S corporation, when incorporated in January Year 1. Elkom's operating results and dividend distribution are as follows: What is Elk's basis for his Elkom stock on December 31 of 2019?