Deck 12: S Corporations

Question 1

Persons who were shareholders during any part of the year before the election date,but were not shareholders when the elction was made,also must consent to the election.

Answer 1

True

Question 2

Most IRAs can own stock in an S corporation.

Answer 2

False

Question 3

An S election made before becoming a corporation is valid the next 12-month tax year.

Answer 3

False

Question 4

Where the S corporation rules are silent,C corporation provisions apply.

Question 5

If a resident alien shareholder moves outside the U.S.,the S election is terminated.

Question 6

An S corporation cannot incur a tax liability at the corporation level.

Question 7

The termination of an S election occurs on the day after a corporation ceases to be a small business corporation.

Question 8

Distributions of appreciated property by an S corporation are not taxable to the entity.

Question 9

S corporations are treated as partnerships under state laws.

Question 10

Only 51% of the shareholders must consent to an S election.

Question 11

For a new corporation,a premature S election may not be effective.

Question 12

More S corporation returns are filed than C corporation returns.

Question 13

Tax-exempt income at the S level loses its special tax treatment for the shareholder.

Question 14

An estate may be a shareholder of an S corporation.

Question 15

An S election is made on Form 2550.

Question 16

S corporation status allows shareholders to realize tax benefits from corporate losses immediately (assuming sufficient stock basis).

Question 17

An S corporation can be a shareholder in another corporation.

Question 18

Most limited liability partnerships can own stock in an S corporation.

Question 19

Liabilities affect the owner's basis differently in an S corporation versus a partnership.

Question 20

NOL carryovers for C years can be used in an S corporation year.

Question 21

The pro rata method assigns an equal amount of each of the S corporation items (e.g.,LTCG)to each day of the year.

Question 22

All tax preference items flow through the S corporation,to be included in the shareholders' AMT calculations.

Question 23

An S corporation may not amortize organization expenses.

Question 24

An S shareholder who dies during the corporate tax year must report his or her share of the pro rata income (or loss)up to the date of death on the final individual tax return.

Question 25

An S corporation's AAA cannot have a negative balance.

Question 26

Distributions are made from OAA after AEP and AAA reach zero.

Question 27

Tax-exempt income is not separately stated on Schedule K of Form 1120S.

Question 28

An S corporation recognizes a loss when distributing assets that are worth less than their basis.

Question 29

Passive investment income includes gains from the sale of securities.

Question 30

An item that appears in the "Other Adjustments Account" affects basis,but not AAA,such as tax-exempt life insurance proceeds.

Question 31

Any distribution of cash or property by a corporation with respect to the stock during a post-termination transition period of approximately one year is applied against and reduces the adjusted basis of the stock.

Question 32

Tax-exempt income at the corporate level does flow through to the shareholders.

Question 33

An S corporation does not recognize gain on a distribution of appreciated property.

Question 34

An S corporation with earnings and profits can make a taxable dividend distribution by making a AAA bypass election.

Question 35

A capital loss allocated to a shareholder always reduces the accumulated adjustments account.

Question 36

A distribution from previously taxed income is not taxable.

Question 37

Post-termination distributions that are charged against OAA get tax-free treatment.

Question 38

On distribution of loss property,an S corporation receives a step-down in basis.

Question 39

Payment of an illegal kickback would increase a shareholder's stock basis.

Question 40

An S corporation does not recognize a loss when distributing assets that are worth less than their basis.

Question 41

The § 1374 tax is a shareholder-level tax on any built-in gain recognized when an S corporation disposes of an asset in a taxable disposition within 10 calendar years after the latest date on which the S election took effect.

Question 42

Stock basis is first increased by income items,then decreased by losses,and then decreased by distributions.

Question 43

It is not beneficial for an S corporation to issue § 1244 stock.

Question 44

In certain circumstances,an S shareholder's basis in her S stock can be reduced below zero.

Question 45

Passive investment income includes capital gains from the sale of stocks and securities after 2007.

Question 46

Which statement is incorrect?

A)S corporations are treated as corporations under state law.
B)S corporations for tax purposes are treated as partnerships.
C)Distributions of appreciated property are taxable to the S corporation.
D)The accumulated earnings tax does not apply to an S corporation.
E)None of the above.

Question 47

The carryover period for the NOLs of a C corporation continues to run during S corporation years.

Question 48

Any excess of losses or deductions over both stock and debt basis is lost forever.

Question 49

An S corporation may be subject to the following tax.

A)Corporate income tax (§ 11).
B)Passive investment income tax.
C)Personal holding company tax.
D)Alternative minimum tax.
E)None of the above apply to S corporations.

Question 50

An S shareholder's basis includes a ratable share of any S corporation liabilities.

Question 51

Any losses that are suspended under the at-risk rules are carried forward and are available during an S corporation's post-termination period.

Question 52

The S corporation is entitled to a deduction for its NOL carryovers.

Question 53

Any distribution made by an S corporation during a tax year is taken into account before accounting for the year's losses.

Question 54

Any excess of S corporation losses or deductions over the shareholder's combined stock and debt basis is suspended until there is a subsequent stock or debt basis.

Question 55

The debt basis always is adjusted back to the original amount before any increase is made in the stock basis.

Question 56

Depletion in excess of basis in the property will cause an upward adjustment to an S shareholder's basis.

Question 57

The LIFO recapture tax is a variation of the passive investment income penalty tax.

Question 58

Compensation for services rendered to an S corporation is subject to FICA taxes.

Question 59

A shareholder's basis is decreased by stock purchases.

Question 60

The § 1202 exclusion of gain on disposition of S corporation stock is not available.

Question 61

Which statement is incorrect with respect to an S shareholder's consent?

A)An S election requires a consent from all corporate shareholders.
B)Both husband and wife must consent if one owns the stock as community property.
C)A consent extension is available only if Form 2553 is filed on a timely basis, reasonable cause is given, and the interests of the government are not jeopardized.
D)A consent must be in writing.
E)None of the above statements is incorrect.

Question 62

Beginning in 2008,the AAA of Amit,Inc.,an S corporation,has a balance of $782,000.During the year,the following items occur.

Amit's ending AAA balance is:

A)$1,171,100.
B)$1,185,150.
C)$1,191,150.
D)$1,242,150.
E)Some other amount.

Question 63

Which transaction affects the Other Adjustments Account on an S corporation's Schedule M-2?

A)Charitable contributions.
B)Unreasonable compensation.
C)Payroll tax penalty assessed.
D)Section 1245 income.
E)None of the above.

Question 64

An S corporation must possess the following characteristics.

A)No more than one class of stock.
B)Corporation organized in the U.S.
C)Only one class of stock.
D)All of the above are required of an S corporation.
E)None of the above is required of an S corporation.

Question 65

What statement is correct with respect to an S corporation?

A)There is no advantage also to elect § 1244 stock.
B)An S corporation can own 85% of an insurance company.
C)An estate may be a shareholder.
D)A voting trust arrangement is not available.
E)None of the above statements is true.

Question 66

If the beginning balance in OAA is zero,and the following transactions occur,what is the ending OAA balance?

A)$1,300.
B)$6,600.
C)$23,300.
D)$27,500.
E)None of the above.

Question 67

Several individuals acquire assets on behalf of Skip Corporation on May 29,2008,purchased assets on June 3,and begin doing business on June 11,2008.They subscribe to shares of stock,file articles of incorporation for Skip,and become shareholders on June 21,2008.The S election must be filed no later than 2 1/2 months after:

A)May 29, 2008.
B)June 3, 2008.
C)June 11, 2008.
D)June 21, 2008.
E)December 31, 2008.

Question 68

On January 1,2008,Kinney,Inc.,an electing S corporation,has $4,000 of AEP and a balance of $10,000 in AAA.Kinney has two shareholders,Erin and Maine,each of whom owns 500 shares of Kinney's stock.Kinney's 2008 taxable income is $5,000.Kinney distributes $6,000 to each shareholder on February 1,2008,and distributes another $3,000 to each shareholder on September 1.How is Erin taxed on this distribution?

A)$500 dividend income.
B)$1,000 dividend income.
C)$1,500 dividend income.
D)$3,000 dividend income.
E)None of the above.

Question 69

Identify a disadvantage of an S corporation.

A)Generally, trusts cannot be shareholders.
B)Losses flow through to the shareholders.
C)The AMT on corporations is avoided.
D)Tax-exempt income flows through to the shareholders.
E)None of the above is a disadvantage of the S election.

Question 70

Which,if any,of the following can be eligible shareholders of an S corporation?

A)A resident alien.
B)Partnership.
C)A foreign corporation.
D)A nonqualifying trust.
E)None of the above can own stock.

Question 71

Which transaction affects the Other Adjustments Account on an S corporation's Schedule M-2?

A)Payroll penalty.
B)Unreasonable compensation.
C)Life insurance proceeds (nontaxable to the recipient S corporation).
D)Taxable interest.
E)None of the above affects the OAA.

Question 72

Which,if any,of the following can be eligible shareholders of an S corporation?

A)A child, age 10.
B)A resident alien.
C)A voting trust.
D)An estate of a deceased shareholder.
E)All of the above can own stock.

Question 73

What statement is correct with respect to an S corporation?

A)There are now more LLCs than S corporations.
B)S corporation status allows shareholders to realize tax benefits from corporate losses immediately.
C)An S corporation is prohibited from being a member of an affiliated group.
D)An LLP may own stock in an S corporation.
E)None of the above.

Question 74

Which,if any,of the following items decreases an S corporation's AAA?

A)Long-term capital loss.
B)Expenses related to tax-exempt income.
C)Depletion in excess of basis.
D)Distribution from earnings and profits.
E)None of the above.

Question 75

Which type of distribution from an S corporation is taxed at the 5/15% rate?

A)AAA.
B)PTI.
C)OAA.
D)AEP.
E)None of the above.

Question 76

Which corporation is eligible to make the S election?

A)Foreign corporation.
B)100% owned corporation.
C)An insurance company.
D)A U.S. bank.
E)None of the above can elect S status.

Question 77

Which could constitute a second class of stock?

A)Treasury stock.
B)Phantom stock.
C)Unexercised stock options.
D)Warrants.
E)None of the above.

Question 78

During 2008,Houston Nutt,the sole shareholder of a calendar year S corporation,received a distribution of $16,000.On December 31,2007,his stock basis was $4,000.The corporation earned $11,000 ordinary income during the year.It has no accumulated E & P.Which statement is correct?

A)Nutt recognizes a $1,000 LTCG.
B)Nutt's stock basis will be $2,000.
C)Nutt's ordinary income is $15,000.
D)Nutt's return of capital is $11,000.
E)None of the above.

Question 79

Which statement is incorrect with respect to filing for an S election?

A)Form 2553 must be filed.
B)All shareholders must consent.
C)The election may be filed in the previous year.
D)An extension of time is available for filing Form 2553.
E)None of the above are incorrect.

Question 80

Which transaction affects the Other Adjustments Account on an S corporation's Schedule M-2?

A)Taxable dividends.
B)Stock dividend (taxable).
C)Section 1250 gain.
D)Tax-exempt income.
E)None of the above.