Question 1

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 will probably approve a continued S election if the corporation distributes the Subchapter C E&P. This is because the passive investment income test failure and the existence of Subchapter C E&P were not known at the time Krause made the S election. If Krause corrects the mistake by distributing the Subchapter C E&P, they should be able to continue their S election.

Question 2

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.

Question 3

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 4

Identify which of the following statements is true.

Accepted Answer

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

Question 5

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 for Great Corporation is due on March 15 of the next year, which is the deadline for all S corporation tax returns.

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

Which of the following would terminate a Subchapter S election?

Accepted Answer

The partnership becoming a shareholder would terminate a Subchapter S election as partnerships are not eligible S corporation shareholders. The estate, grantor trust, and voting trust are all eligible shareholders for an S corporation.

Question 9

Identify which of the following statements is true.

Accepted Answer

Option A is incorrect because only a majority of shareholders need to consent to a revocation of the S election. Option B is incorrect because a revocation of an S corporation election cannot be retrospective to any date; it often requires a waiting period before it takes effect. Option C is true because excess passive income only applies to S corporations with Subchapter C E&P.

Question 10

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 11

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 12

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 13

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 14

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 15

Identify which of the following statements is false.

Accepted Answer

The statement that a ten-tax-year waiting period is required before making a new S election after termination is not entirely true. While there is a waiting period, it is five years rather than ten.

Question 16

If an S corporation inadvertently terminates its election,the IRS

Accepted Answer

The IRS may permit the corporation to report as an S corporation even for the period that includes the termination date if the termination was inadvertent and the corporation takes corrective action within a reasonable time. The IRS may also require the corporation to file Form 1120S for the period between the termination and the reinstatement of the S election.

Question 17

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 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 or other consequences, but it does not terminate an S election. Exceeding the 100-shareholder limit, creating a second class of stock with a dividend preference, and selecting an improper tax year are all potential reasons for termination of an S election.

Question 19

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 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

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.

Quiz 11: S Corporations

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

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

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

Identify which of the following statements is true.

All shareholders must consent to the revocation of S status.

Which of the following would terminate a Subchapter S election?

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?

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?

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 2010.The first year that April would be eligible to reelect S corporation status is

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.

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