Question 1

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 2

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 E&P balance from its three pre-election tax years.The IRS will

Accepted Answer

The answer of Krause Corporation makes an S election, believing...

Question 3

Identify which of the following statements is true.

Accepted Answer

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

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 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 6

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 7

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 8

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 allowed under certain circumstances such as when the corporation is able to show reasonable cause for the failure to meet the requirements for continued election as an S corporation.

Question 9

Identify which of the following statements is true.

Accepted Answer

A is incorrect because an S corporation can own stock of another corporation, but it cannot be an S corporation itself.
B is incorrect because an S corporation can own 100% of the stock of another S corporation, but it would be treated as a QSub.
C is true. If an S corporation owns all of the stock of a QSub, the subsidiary is not treated as a separate entity for tax purposes, and all income, deductions, and losses are reported on the S corporation's tax return.

Question 10

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

Accepted Answer

Failing to file a timely tax return will not cause an S election to be terminated. However, it can result in penalties and interest on any unpaid taxes. Exceeding the 100-shareholder limit and creating a second class of stock having a dividend preference will both result in termination of S election. Selecting an improper tax year can also result in termination of S election.

Question 11

Alligood Corporation has two classes of common stock outstanding.The Class A and Class B common stock give the shareholders identical rights and interests in the profits and assets of the corporation.Class A stock has one vote per share.Class B stock is nonvoting.Alligood Corporation may

Accepted Answer

Alligood Corporation can make the S election at any time because both classes of stock have identical rights and interests in the profits and assets of the corporation. The fact that Class B stock is nonvoting does not prevent the corporation from making the S election.

Question 12

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 13

Identify which of the following statements is true.

Accepted Answer

A) is false because only a majority of shareholders need to consent to revocation of the S election.

B) is false because a revocation of S corporation status can only be prospective, not retrospective.

C) is true. An S election will not be terminated due to excess passive income if the corporation does not have Subchapter C E&P.

D) is false. Only option C is true, while options A and B are false.

Question 14

For an S corporation to elect to use a fiscal year other than a permitted year, the fiscal year elected must have a maximum deferral period of

Accepted Answer

According to the IRS, an S corporation can only use a fiscal year other than a permitted year if the maximum deferral period is three months or less. Permitted years are calendar year or any other tax year for which the corporation has established a business purpose. Therefore, the maximum deferral period for an S corporation to use a fiscal year other than a permitted year is three months.

Question 15

Mary, a U.S.citizen, owned 25% of the stock of Floran Corporation, an electing S corporation.At the time of her death, the Floran stock may go to all the following without affecting the S election except

Accepted Answer

The transfer of the Floran stock to a charitable remainder unitrust would result in the termination of the S corporation election, because a charitable trust is not an eligible S corporation shareholder. The transfer of the stock to Mary's estate, a testamentary trust, or a small business trust would not affect the S election.

Question 16

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

Accepted Answer

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

Question 17

Identify which of the following statements is true.

Accepted Answer

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

Question 18

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

An S election can be made any time during the tax year prior to the year the election is to take effect or no later than 2.5 months after the beginning of the year the election is to take effect. Therefore, for a fiscal year taxpayer with a year-end of June 30, the S election must be made by September 15 of the current year.

Question 19

Identify which of the following statements is true.

Accepted Answer

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

Question 20

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...

Quiz 11: S Corporations

Identify which of the following statements is false.

Identify which of the following statements is true.

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

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?

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?

If an S corporation inadvertently terminates its election, the IRS

Identify which of the following statements is true.

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

Alligood Corporation has two classes of common stock outstanding.The Class A and Class B common stock give the shareholders identical rights and interests in the profits and assets of the corporation.Class A stock has one vote per share.Class B stock is nonvoting.Alligood Corporation may

Identify which of the following statements is true.

Identify which of the following statements is true.

For an S corporation to elect to use a fiscal year other than a permitted year, the fiscal year elected must have a maximum deferral period of

Mary, a U.S.citizen, owned 25% of the stock of Floran Corporation, an electing S corporation.At the time of her death, the Floran stock may go to all the following without affecting the S election except

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

Identify which of the following statements is true.

Identify which of the following statements is true.

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