Deck 12: S Corporations

Question 1

A two-or-more member LLC operates under partnership tax principles.

Answer 1

True

Question 2

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

Answer 2

True

Question 3

Most IRAs can own stock in an S corporation.

Answer 3

False

Question 4

For Federal income tax purposes,taxation of S corporations resembles that of partnerships.

Question 5

No maximum or minimum dollar sales or capitalization restrictions apply to S corporations.

Question 6

Where the S corporation rules are silent,partnership rules apply to the S corporation.

Question 7

Net operating losses incurred before an S election do not flow through to the shareholders once the election is in effect.

Question 8

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

Question 9

The alternative minimum tax applies to an S corporation.

Question 10

As a general rule,S corporation treatment is not advantageous when the individual tax rate far exceeds the applicable corporate tax rate.

Question 11

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

Question 12

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

Question 13

An S election is made on Form 2550.

Question 14

Shareholders may deduct losses in excess of the basis in S corporation stock when shareholder does not have a loan basis.

Question 15

Distribution of appreciated property is taxable to an S corporation.

Question 16

An S corporation can be a shareholder in another corporation.

Question 17

Persons who were shareholders during any part of the year before the election date,but were not shareholders when the election was made,also must consent to the election for the S election to be effective for the current tax year.

Question 18

Charitable contributions are subject to the 10% limitation at the S corporation level.

Question 19

The passive loss limitations apply at the S corporation shareholder level.

Question 20

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

Question 21

An S shareholder's basis is increased by stock purchases and capital contributions.

Question 22

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

Question 23

A distribution from previously taxed income is taxable.

Question 24

An S corporation may not amortize organizational expenses.

Question 25

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 26

When loss assets are distributed by an S corporation,a shareholder's basis is equal to the asset's fair market value.

Question 27

The Schedule M-3 is the same for a C corporation and an S corporation.

Question 28

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

Question 29

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

Question 30

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

Question 31

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

Question 32

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

Question 33

A distribution of cash or other property by an S corporation to shareholders that does not exceed the balance of AAA during a one-year period following an S election termination receives special capital gain treatment.

Question 34

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

Question 35

Post-termination distributions that are charged against OAA do not get tax-free treatment.

Question 36

Passive investment income includes gains from the sale of securities.

Question 37

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 38

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

Question 39

An S corporation that has total assets of at least $5 million on Schedule L at the end of the tax year must file a Schedule M-3.

Question 40

Any distribution of cash or property by a corporation that does not exceed the balance of AAA 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 41

The § 1374 tax is a corporate-level tax on any built-in gain recognized in 2010 when an S corporation disposes of an asset in a taxable disposition within 7 tax years after the date on which the S election took effect.

Question 42

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 43

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

Question 44

An S shareholder's basis does not include a ratable share of any S corporation liabilities.

Question 45

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

Question 46

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 47

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

Question 48

Pass-through S corporation losses can reduce the basis in the shareholder's loan to the entity,but distributions do not.

Question 49

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

Question 50

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

Question 51

An S shareholder's basis is decreased by distributions treated as being paid from AAA.

Question 52

Which statement is incorrect?

A)S corporations are treated as corporations under state law.
B)S corporations resemble partnerships under the Federal income tax law.
C)The alternative minimum tax applies to some S corporations.
D)An S corporation may not allocate income and deduction items to specific shareholders,like a partnership does.
E)None of the above.

Question 53

An S shareholder's basis in his or her stock can be reduced below zero.

Question 54

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

Question 55

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

Question 56

An S corporation may be subject to the following tax.

A)Built-in gains tax.
B)Accumulated earnings tax.
C)Personal holding company tax.
D)Alternative minimum tax.
E)None of the above is paid by S corporations.

Question 57

Form 1120S provides a shareholder's computation of his or her stock basis.

Question 58

Compensation for services rendered to an S corporation is not subject to FICA taxes.

Question 59

An S corporation shareholder's basis includes his or her direct investments plus a ratable share of any corporate liabilities.

Question 60

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

Question 61

Beginning in 2010,the AAA of Amit,Inc. ,an S corporation,has a balance of $725,000.During the year,the following items occur.

Amit's ending AAA balance is:

A)$1,153,150.
B)$1,134,150.
C)$1,127,650.
D)$1,126,750.

Question 62

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 63

Distributions of which assets during an S corporation's post-termination period receive favorable income tax treatment?

A)Cash.
B)Automobile.
C)Real estate.
D)Notes receivable.
E)All of the above.

Question 64

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 65

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 66

How large must total assets on Schedule L be at the end of the year for an S corporation to be required to file Schedule M-3?

A)$4 million.
B)$5 million.
C)$7.5 million.
D)$10 million.
E)Not required to file.

Question 67

If the beginning balance in OAA is $3,900,and the following transactions occur,what is the ending OAA balance?

A)$1,100.
B)$6,400.
C)$53,600.
D)$56,400.
E)None of the above.

Question 68

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.

Question 69

Which statement is incorrect about an S corporation?

A)Nonresident alien cannot own S stock.
B)A one-person LLC classified as a disregarded entity can be a shareholder.
C)A partnership can own S corporation stock.
D)An S corporation can be a partner in a partnership.
E)None of the above.

Question 70

Several individuals acquire assets on behalf of Skip Corporation on May 28,2010,purchased assets on June 3,2010,and begin doing business on June 11,2010.They subscribe to shares of stock,file articles of incorporation for Skip,and become shareholders on June 21,2010.The S election must be filed no later than 2 1/2 months after:

A)May 28,2010.
B)June 3,2010.
C)June 11,2010.
D)June 21,2010.
E)December 31,2010.

Question 71

Which statement is incorrect?

A)S corporation status allows shareholders to realize tax benefits from corporate losses immediately.
B)Shareholder-level tax on corporate profits can be eliminated by a step-up in the basis of the stock upon the shareholders death.
C)Less than 50% of corporations make the S election.
D)An S corporation resembles an LLC for Federal income tax purposes.
E)None of the above.

Question 72

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 73

Which type of distribution from an S corporation is taxed at the 0/15% rate?

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

Question 74

During 2010,Shirley Nutt,the sole shareholder of a calendar year S corporation,received a distribution of $16,000.On December 31,2009,her 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 75

Which equity arrangement would stop a corporation from being an S corporation?

A)Phantom stock.
B)Stock appreciation rights.
C)Warrants.
D)Straight debt.
E)An insurance company structure.

Question 76

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 77

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 78

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 79

The maximum number of S shareholders is:

A)75.
B)100.
C)200.
D)Indeterminable.
E)Some other amount.

Question 80

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

A)An S election requires a consent from all of the S corporation's 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.