Question 1

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...

Question 2

Identify which of the following statements is true.

Accepted Answer

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

Question 3

Identify which of the following statements is true.

Accepted Answer

A) is false because only a majority of the shareholders need to consent to the revocation. B) is false because a revocation can only be prospective, not retrospective. C) is true because if the S corporation does not have Subchapter C E&P, then excess passive income will not terminate the S election.

Question 4

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 5

Which of the following would terminate a Subchapter S election?

Accepted Answer

A partnership cannot be a shareholder in an S corporation, which means if a partnership becomes a shareholder, it would terminate the Subchapter S election.

Question 6

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 7

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 8

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 9

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 10

April Corporation's Subchapter S election was voluntarily terminated for 2015. 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 11

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

An S election can be made for the current year if all shareholders during the year, including Sergei, consent to the election.

Question 12

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 on March 15th of the next year as this is the due date for all S corporation returns, regardless of the length of the tax year. This allows time for the corporation to prepare and submit the necessary tax forms before the regular due date of April 15th for calendar-year taxpayers.

Question 13

If an S corporation inadvertently terminates its election, the IRS

Accepted Answer

The IRS may permit the corporation to continue to report as an S corporation even for the period that includes the termination date if the termination was inadvertent. This is allowed as long as the corporation takes timely corrective action and the IRS approves the request for relief.[1]

B, C, and D are not accurate because the waiting period for restoration of the S election after inadvertent termination is generally not five years, restoration is not dependent on the control of the corporation over the event causing termination, and restoration is not dependent on the approval or consent of the shareholders.

Question 14

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

Accepted Answer

Failing to file a timely tax return may result in penalties, but it will not cause an S election to be terminated. However, exceeding the 100-shareholder limit, creating a second class of stock with a dividend preference, or selecting an improper tax year can all result in termination of an S election.

Question 15

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 16

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. The corporation must not receive more than 25% of its gross receipts from passive income sources in order to maintain its S corporation status.

Question 17

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

To elect S corporation status for the current tax year, the election must be made by the 15th day of the 3rd month of the tax year. For a fiscal year taxpayer with a year-end of June 30, this date would be September 15 of the current year.

Question 18

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 19

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 20

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...

Quiz 11: S Corporations

Identify which of the following statements is true.

Identify which of the following statements is true.

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

Which of the following would terminate a Subchapter S election?

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?

Identify which of the following statements is false.

All shareholders must consent to the revocation of S status.

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

April Corporation's Subchapter S election was voluntarily terminated for 2015. The first year that April would be eligible to reelect S corporation status is

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?

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

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

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

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

Identify which of the following statements is true.

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?