Question 1

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 the choices are correct. B

Question 2

RGD Corporation was a C corporation from its inception in 2012 through 2016.However,it elected S corporation status effective January 1,2017.RGD had $50,000 of earnings and profits at the end of 2016.RGD reported the following information for its 2017 tax year.
  What amount of excess net passive income tax is RGD liable for in 2017? (Round your answer for excess net passive income to the nearest thousand).

Accepted Answer

$10,500 (35% × $30,000).Passive investment income is $73,000 ($6,000 municipal bond interest + $42,000 interest income + $25,000 dividend income); Gross receipts of $172,000 ($99,000 consulting revenue + $6,000 municipal bond interest + $42,000 interest income + $25,000 dividend income); Expenses in producing passive investment income are $0.
Excess net passive income is $30,000 computed as $73,000 × [$73,000 - (25% × $172,000)]/$73,000.
Consequently,the excess net passive income tax is $10,500 = 35% × $30,000.

Question 3

Suppose a calendar year C corporation,NewCorp.,Inc.,was formed on January 1,2017 and all of the shareholders filed a form 2553 to elect S corporation status on April 14,2017 with the consent of all of NewCorp.Inc.'s shareholders: Hassell,Richie Cunningham,and Arnold's,Inc.(a C corporation).When is the S election effective?

Accepted Answer

A)   January 1, 2017.
B)   April 14, 2017.
C)   January 1, 2018.
D)   April 14, 2018.
E)   Never. E

Question 4

At the beginning of the year,Harold,Missy,and Ranae formed HMR Corporation as an S corporation.For one-third of the HMR stock,Harold contributed $50,000 cash and land with a fair market value of $75,000 and adjusted tax basis of $60,000.The land was subject to a $45,000 mortgage,which was assumed by HMR on the formation.Missy and Ranae each contributed $80,000 cash to HMR for one-third of the HMR stock.What is Harold's basis in the HMR stock after the formation? What is Missy's basis in her HMR stock after the formation?

Accepted Answer

The answer of At the beginning of the year,Harold,Missy,and Ranae...

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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 7

Which of the following is not an adjustment to an S corporation shareholder's stock basis?

Accepted Answer

A)   Increase for any contributions to the S corporation during the year.
B)   Increase for shareholder's share of ordinary business income.
C)   Decrease for shareholder's share of nondeductible items.
D)   Increase for distributions during the year.
E)   None of the choices are correct.

Question 8

S corporations are not entitled to a dividends received deduction.

Accepted Answer

A) True 
 B)False

Question 9

For an S corporation shareholder to deduct it,a loss must clear three separate tax-provision hurdles: (1)tax basis,(2)at-risk amount,and (3)tax-shelter rules.

Accepted Answer

A) True 
 B)False

Question 10

XYZ Corporation (an S corporation)is owned by Jane and Rebecca who are each 50% shareholders.At the beginning of the year,Jane's basis in her XYZ stock was $40,000.XYZ reported the following tax information for 2017.
  Required:
a.What amount of ordinary business income is allocated to Jane?
b.What is the amount and character of separately stated items allocated to Jane?
c.What is Jane's basis in her XYZ corp.stock at the end of the year?

Accepted Answer

The answer of XYZ Corporation (an S corporation)is owned by...

Question 11

J.D.formed Clampett,Inc.as a C corporation (calendar tax year)with J.D.,Granny,and Jethro,Inc.(a C corporation)as shareholders.On January 15,2017,Jethro,Inc.sold all its shares to Jane Hathaway.On February 28,2017,Clampett,Inc.filed an S corporation election,with J.D.,Granny,and Jane all consenting to the election.What is the earliest effective date of the S election?

Accepted Answer

A)   January 1, 2017.
B)   January 1, 2018.
C)   January 1, 2019.
D)   February 28, 2018.
E)   Never.

Question 12

Which of the following is not considered a family member for purposes of the S corporation shareholder limit test?

Accepted Answer

A)   brother.
B)   great-grandparent.
C)   grandchildren.
D)   grandparent.
E)   none of the choices are correct.

Question 13

During 2017,CDE Corporation (an S corporation since its inception in 2015)liquidates this year by distributing a parcel of land to its sole shareholder Clark.The fair market value of the land at the time of the distribution was $100,000 and CDE's tax basis in the property was $30,000.Before considering the effects of the distribution,Clark's basis in his CDE stock was $40,000.What amount of gain (loss),if any,does CDE recognize on the distribution? What amount of income or loss,if any,does Clark recognize on the distribution and what is his basis in the land?

Accepted Answer

The answer of During 2017,CDE Corporation (an S corporation since...

Question 14

Suppose at the beginning of 2017,Jamaal's basis in his S corporation stock is $0,he has a $0 debt basis associated with a $10,000 loan he made to the S corporation and a $5,000 suspended loss from the S corporation.In 2017,Jamaal contributed $8,000 to the S corporation,and the S corporation had ordinary income of $4,000.Assume that Jamaal owns 40% of the S corporation.How much net income or loss does Jamaal report this year from the S corporation?

Accepted Answer

A)   $4,000 income.
B)   $1,600 income.
C)   $1,000 loss.
D)   $3,400 loss.
E)   None of the choices are correct.

Question 15

At the beginning of the year,Clampett,Inc.had $100,000 in its AAA,$60,000 of earnings and profits from prior C corporation years.During the year,Clampett,Inc.earned $50,000 of ordinary income and paid $200,000 in distributions to its shareholders.Assume that J.D.owns 25% of Clampett,Inc.,his basis in Clampett,Inc.at the beginning of the year is $10,000,and his share of the distribution was $50,000.How much income does J.D.recognize this year from these transactions?

Accepted Answer

A)   $0.
B)   $10,000.
C)   $17,500.
D)   $40,000.
E)   None of the choices are correct.

Question 16

The specific identification method and monthly allocation method are methods an S corporation may use to allocate its income across short tax years that result from an involuntary S election termination.

Accepted Answer

A) True 
 B)False

Question 17

The estimated tax payment rules for S corporations generally follow the rules for C corporations.

Accepted Answer

A) True 
 B)False

Question 18

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 the choices are correct.

Question 19

S corporation distributions of cash are not taxable to the shareholder to the extent of the combined shareholder's stock and debt basis.

Accepted Answer

A) True 
 B)False

Question 20

Assume that at the end of 2017,Clampett,Inc.(an S corporation)distributes property (fair market value of $40,000,basis of $5,000)to each of its four equal shareholders (aggregate distribution of $160,000).At the time of the distribution,Clampett,Inc.has no corporate E&P and J.D.has a basis of $50,000 in his Clampett,Inc.stock.What is J.D.'s stock basis after the distribution?

Accepted Answer

A)   $45,000.
B)   $50,000.
C)   $85,000.
D)   $90,000.
E)   None of the choices are correct.

Exam 11: S Corporations

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

Corporations taxed as S corporations offer the same legal protection to owners as corporations taxed 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 not an adjustment to an S corporation shareholder's stock basis?

S corporations are not entitled to a dividends received deduction.

For an S corporation shareholder to deduct it,a loss must clear three separate tax-provision hurdles: (1)tax basis,(2)at-risk amount,and (3)tax-shelter rules.

Which of the following is not considered a family member for purposes of the S corporation shareholder limit test?

The specific identification method and monthly allocation method are methods an S corporation may use to allocate its income across short tax years that result from an involuntary S election termination.

The estimated tax payment rules for S corporations generally follow the rules for C corporations.

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

S corporation distributions of cash are not taxable to the shareholder to the extent of the combined shareholder's stock and debt basis.