Question 1

Gofer Corporation, an S corporation, is owned equally by Mahmoud and Kwame. The corporation had long- term capital gains of $100,000 and ordinary income of $90,000 for the current year and made no
distributions. What is the amount of ordinary income from S corporation activities that Mahmoud must report?

Accepted Answer

The answer of Gofer Corporation, an S corporation, is owned...

Question 2

List and discuss five advantages and five disadvantages of electing to be taxed as an S corporation over a C corporation or a partnership.

Accepted Answer

The answer of List and discuss five advantages and five...

Question 3

Identify which of the following statements is true.

Accepted Answer

A)  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. 
B)  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. 
C)  Special allocations of ordinary income or loss and separately stated items that are available for partnerships are also permitted with S corporations. 
D)  All of the above are false.

Question 4

The Vanity Corporation organized and began operations in January. The corporation's ten equal shareholders elect to have Vanity taxed as an S corporation, and the election and necessary consents are filed in a timely manner. For its first tax year ended December 31, Vanity has ordinary income of $64,000 and short- term capital gains of $16,000. During the year, it distributes $30,000 in cash equally to its ten shareholders. For the year, how much income should each shareholder report and how should it be characterized?

Accepted Answer

The answer of The Vanity Corporation organized and began operations...

Question 5

Identify which of the following statements is false.

Accepted Answer

A)  The IRS can grant extensions of time of filing shareholder consents to the S election. 
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 election form can be signed by a person authorized to sign the S corporation tax return.

Question 6

Identify which of the following statements is true.

Accepted Answer

A)  All of the shareholders of an S corporation must consent to a revocation of the S election. 
B)  An S election will not be terminated due to excess passive income if the corporation does not have Subchapter C E&P. 
C)  A revocation of an S corporation election can be retrospective to any date. 
D)  All of the above are true.

Question 7

Zinc Corporation is created in the current year and promptly makes an S election. How much passive income can it earn this year without fear of losing its S corporation status or being subject to the Sec. 1375 tax on excess net passive income?

Accepted Answer

The answer of Zinc Corporation is created in the current...

Question 8

Identify which of the following statements is true.

Accepted Answer

A)  The built- in gains tax applicable to S corporations can be avoided if the property is held for ten years. 
B)  An S corporation generally will not owe the built- in gains tax if the corporation has never been a C corporation. 
C)  Beach Corporation, an S corporation, has gross receipts of $240,000; taxable income of $120,000; passive investment income of $100,000; and expenses directly attributable to the passive investment income of $20,000. The corporation's excess net passive income is $32,000. 
D)  All of the above are true.

Question 9

Which of the following tax levies imposed on an S corporation are required to be paid by using estimated tax payments?

Accepted Answer

A)  built- in gains tax 
B)  excess net passive income tax 
C)  both A and B 
D)  none of the above

Question 10

Swamp Corporation, a calendar- year taxpayer, has been an S corporation for several years. However, the corporation has become quite profitable, and management feels that it would be advantageous to make a public stock offering. What are Swamp Corporation's options concerning the date of revocation of the S election?

Accepted Answer

The answer of Swamp Corporation, a calendar- year taxpayer, has...

Question 11

Identify which of the following statements is true.

Accepted Answer

A)  An S corporation shareholder can increase the adjusted basis of his/her stock by any indebtedness owed the shareholder by the S corporation. 
B)  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. 
C)  The loss pass- throughs from an S corporation may produce a net operating loss for the shareholder. 
D)  All of the above are false.

Question 12

All shareholders must consent to the revocation of S status.

Accepted Answer

A) True 
 B)False

Question 13

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)  A majority of shareholders must consent to the S corporation election. 
C)  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. 
D)  All of the above are false.

Question 14

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

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

Question 15

Power Corporation reports the following results:  At the end of the year, Power's Subchapter C E&P is $50,000. What is Power Corporation's excess net passive inc and its excess net passive income tax for the year?

Accepted Answer

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

Question 16

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

Accepted Answer

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

Question 17

The S corporation rules were enacted to allow small corporations to enjoy the nontax advantages of the corporate form of business without being subject to the tax disadvantage of double taxation.

Accepted Answer

A) True 
 B)False

Question 18

Alligood 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 stock has one vote per share. Class B stock is nonvoting. Alligood Corporation may

Accepted Answer

A)  make the S election once the Class B is retired. 
B)  not make the S election due to two classes of stock. 
C)  make the S election at any time. 
D)  not make the S election due to different voting rights.

Question 19

King Corporation, a cash method taxpayer that uses the calendar year as its tax year, was incorporated on June 1, 1984. The corporation made its initial S election on December 1 of last year, effective for the current tax year. Earnings and profits of $60,000 have been retained from C corporation tax years. Which one of the following events results in the recognition of a built- in gain?

Accepted Answer

A)  collection of accounts receivable in the current year that resulted from services performed last year 
B)  collection of dividends declared on April 5 of the current year on stock purchased on February 14 of the current year 
C)  collection of interest income earned in the current year on bonds purchased on January 1 of last year 
D)  None of the above are built- in gains.

Question 20

The election of Subchapter S status by a corporation is valid only if all shareholders consent to the election.

Accepted Answer

A) True 
 B)False

Exam 11: S Corporations

List and discuss five advantages and five disadvantages of electing to be taxed as an S corporation over a C corporation or a partnership.

Identify which of the following statements is true.

Identify which of the following statements is false.

Identify which of the following statements is true.

Zinc Corporation is created in the current year and promptly makes an S election. How much passive income can it earn this year without fear of losing its S corporation status or being subject to the Sec. 1375 tax on excess net passive income?

Identify which of the following statements is true.

Which of the following tax levies imposed on an S corporation are required to be paid by using estimated tax payments?

Identify which of the following statements is true.

All shareholders must consent to the revocation of S status.

Identify which of the following statements is true.

Power Corporation reports the following results: At the end of the year, Power's Subchapter C E&P is $50,000. What is Power Corporation's excess net passive inc and its excess net passive income tax for the year?

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

The S corporation rules were enacted to allow small corporations to enjoy the nontax advantages of the corporate form of business without being subject to the tax disadvantage of double taxation.

Alligood 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 stock has one vote per share. Class B stock is nonvoting. Alligood Corporation may

The election of Subchapter S status by a corporation is valid only if all shareholders consent to the election.