Question 1

The passive income test relating to an S corporation election is applied

Accepted Answer

The passive income test for an S corporation election is applied annually. This test determines if the corporation has exceeded the limit of passive income and is still eligible for S corporation status.

Question 2

Davies Corporation is a calendar-year taxpayer that is owned equally by Vivian,Rob,Danny,and Doug Davies.At the close of business on May 31,Rob Davies sells his 25% stock interest to Paula Bryan.Which of the following statements about the S election is correct?

Accepted Answer

The S corporation status is not automatically terminated upon the sale of stock to a new shareholder. The new shareholder, Paula, does not need to consent to the S election for it to remain in effect, nor does a new S election need to be filed by June 30. The S election remains in place unless specific actions are taken to terminate it, which are not solely dependent on the consent of a new shareholder within a 30-day period.

Question 3

Which of the following would terminate a Subchapter S election?

Accepted Answer

A partnership becoming a shareholder would terminate a Subchapter S election. The other options of an estate, grantor trust, or voting trust becoming a shareholder would not terminate the Subchapter S election as they are all eligible shareholders.

Question 4

Krause Corporation makes an S election,believing that it has no current or accumulated E&P.However,after an IRS audit,Krause is found to have failed the passive investment income test for three consecutive years and also to have a Subchapter C E&P balance from its three pre-election tax years.The IRS will

Accepted Answer

The IRS will likely treat the termination as inadvertent and allow the corporation to continue its S election if it distributes its Subchapter C E&P. The IRS has the authority to approve a continued S election if it is satisfied that the termination was due to inadvertence and the corporation takes corrective action. In this case, the failure to meet the passive investment income test may have been inadvertent, and the corporation may be able to distribute its E&P to regain its S corp status.

Question 5

Even if the termination of an S election is considered to be inadvertent,the election to terminate is irrevocable.

Accepted Answer

If the termination of an S election is considered inadvertent, the IRS may allow the corporation to retain its S corporation status, provided certain conditions are met and corrective actions are taken.

Question 6

Identify which of the following statements is true.

Accepted Answer

A buy-sell agreement can protect an S corporation from unwanted sale of its stock by outlining certain procedures that must be followed before anyone can sell their shares. The other statements are false: B) "Small business corporation" is just another term for a corporation that meets S corporation requirements, but it is not the same as an S corporation. C) Once a corporation cancels any preferred stock, it is no longer eligible to be an S corporation for that year.

Question 7

All shareholders must consent to the revocation of S status.

Accepted Answer

Only a majority of the shareholders' consent is required to revoke the S corporation status, not all shareholders.

Question 8

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 been an S...

Question 9

Garret and Hans own all the stock of GH Corporation.Garret sells all his GH stock to Olga on February 12.The next day,GH makes an S election.For the election to apply to the current year,who must consent to the election?

Accepted Answer

The answer of Garret and Hans own all the stock...

Question 10

A corporation must make an S election for the current year after March 15 in the case of a calendar-year corporation.

Accepted Answer

A corporation must make an S election by March 15 for it to be effective for the current tax year if it is a calendar-year taxpayer.

Question 11

April Corporation's Subchapter S election was voluntarily terminated for 2010.The first year that April would be eligible to reelect S corporation status is

Accepted Answer

The answer of April Corporation's Subchapter S election was voluntarily...

Question 12

Identify which of the following statements is true.

Accepted Answer

Option A is incorrect because only 50% of the shareholders need to agree to revoke the S corporation election. Option B is incorrect because the revocation can only be effective from the beginning of the tax year. Option C is correct because if the S corporation does not have Subchapter C E&P, the passive income will not cause termination of the S election.

Question 13

On June 30 of the current year,the S election of Great Corporation is terminated,thus creating a six-month S short year and a six-month C short year.Great Corporation is a calendar-year taxpayer.The S short-year return is due

Accepted Answer

The S short-year return is due by March 15 of the following year, which is the normal due date for S corporations.

Question 14

If an S corporation inadvertently terminates its election,the IRS

Accepted Answer

If an S corporation inadvertently terminates its election, the IRS may permit the corporation to report as an S corporation even for the period that includes the termination date. This is known as relief by way of late S election. However, the corporation must meet certain requirements and follow specific procedures to obtain this relief.

Question 15

Identify which of the following statements is true.

Accepted Answer

The answer of Identify which of the following statements is...

Question 16

Helmut and Sergei own all the stock of Zappo Corporation,a calendar-year domestic corporation.On January 30 of the current year,Sergei sells his entire interest in the Zappo stock to Nils.All three individuals are U.S.citizens.Can an S election be made for the current year?

Accepted Answer

The answer of Helmut and Sergei own all the stock...

Question 17

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

Accepted Answer

For a corporation to elect Subchapter S status, all shareholders must consent to the election, ensuring that they are all in agreement with the tax implications and requirements of operating as an S corporation.

Question 18

Which of the following conditions will not cause an S election to be terminated?

Accepted Answer

Failing to file a timely tax return can result in penalties and other consequences, but it does not automatically terminate an S election. However, exceeding the 100-shareholder limit or creating a second class of stock with a dividend preference will cause an S election to be terminated. Selecting an improper tax year can also result in termination unless it is corrected promptly.

Question 19

Identify which of the following statements is false.

Accepted Answer

The correct waiting period before making a new S election after a non-inadvertent termination is generally five tax years, not ten.

Question 20

A C corporation was formed five years ago and is a fiscal-year taxpayer with a June 30 year-end.The C corporation wants to make an S election for its tax year beginning in the current year.The election must be made by ________ (assuming permission can be obtained to continue using the fiscal year from the IRS).

Accepted Answer

In order for the C corporation to make an S election for the current tax year, the election must be made by the 15th day of the third month of the tax year, which is September 15th for a fiscal year taxpayer with a June 30 year-end. Therefore, choice B is the correct answer.

Quiz 11: S Corporations

The passive income test relating to an S corporation election is applied

Davies Corporation is a calendar-year taxpayer that is owned equally by Vivian,Rob,Danny,and Doug Davies.At the close of business on May 31,Rob Davies sells his 25% stock interest to Paula Bryan.Which of the following statements about the S election is correct?

Which of the following would terminate a Subchapter S election?

Even if the termination of an S election is considered to be inadvertent,the election to terminate is irrevocable.

Identify which of the following statements is true.

All shareholders must consent to the revocation of S status.

Garret and Hans own all the stock of GH Corporation.Garret sells all his GH stock to Olga on February 12.The next day,GH makes an S election.For the election to apply to the current year,who must consent to the election?

A corporation must make an S election for the current year after March 15 in the case of a calendar-year corporation.

April Corporation's Subchapter S election was voluntarily terminated for 2010.The first year that April would be eligible to reelect S corporation status is

Identify which of the following statements is true.

On June 30 of the current year,the S election of Great Corporation is terminated,thus creating a six-month S short year and a six-month C short year.Great Corporation is a calendar-year taxpayer.The S short-year return is due

If an S corporation inadvertently terminates its election,the IRS

Identify which of the following statements is true.

Helmut and Sergei own all the stock of Zappo Corporation,a calendar-year domestic corporation.On January 30 of the current year,Sergei sells his entire interest in the Zappo stock to Nils.All three individuals are U.S.citizens.Can an S election be made for the current year?

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

Which of the following conditions will not cause an S election to be terminated?

Identify which of the following statements is false.