Question 1

In computing the taxable income (or loss)of an S corporation,an NOL carryover from a prior year is not allowed.

Accepted Answer

An NOL carryover is allowed to a C corporation but not to an S corporation.

Question 2

If a corporation has no E & P,its shareholders will not have constructive dividends.

Accepted Answer

In this regard,constructive dividends are like regular dividends.

Question 3

Canary Corporation,a calendar year S corporation,issues some of its stock to a nonresident alien on March 5,2014.Canary becomes a C corporation as of March 6,2014.

Accepted Answer

Canary becomes a C corporation as of March 5,2014.

Question 4

Sarah,a sole shareholder,rents property to her corporation.The rent income she receives from the lease is a constructive dividend to Sarah.

Accepted Answer

Only if the rent the corporation pays for the property is more than its fair rental value,will the excess be a constructive dividend.

Question 5

Unlike regular dividends,constructive dividends need not be distributed to a corporation's shareholders on a pro rata basis.

Accepted Answer

This is one of the distinguishing features between regular and constructive dividends.

Question 6

On March 7,2014,all of the shareholders of Kingfisher Corporation (a calendar year entity)voluntarily revoke the S election (effective as soon as possible).For all of 2014,Kingfisher Corporation will be a C corporation.

Accepted Answer

The revocation is effective for all of 2014.So Kingfisher is a C corporation for 2014.

Question 7

An S corporation can be a shareholder in another corporation.

Accepted Answer

An S corporation cannot have a corporation as a shareholder,but it can be a shareholder in another corporation.

Question 8

In computing the taxable income (or loss)of an S corporation,a domestic production activities deduction (DPAD)is allowed.

Accepted Answer

The DPAD is determined at the shareholder level.

Question 9

In order to voluntarily revoke an S election,all of the shareholders must consent to the revocation.

Accepted Answer

All shareholders must consent to making the election,but only the holders of a majority of the shares must consent to revoke the election.

Question 10

Satisfying the definition of a small business corporation is no longer necessary once the S election is initially made.

Accepted Answer

Compliance with the definition of a small business corporation is a continuing requirement for maintaining S corporation status.

Question 11

An S corporation makes a $20,000 cash distribution to a shareholder whose basis in the stock is $19,000.The distribution will result in a $1,000 negative basis in the stock.

Accepted Answer

A capital gain of $1,000 results to the shareholder since the distribution exceeds the shareholder's basis by this amount.A shareholder's basis in a stock investment can never be a negative amount.

Question 12

Jacob is a shareholder in Robin Corporation,an S corporation.Jacob's share of Robin's activities for the current year is a short-term capital gain of $80,000 and an operating loss of $50,000.As a result of these transactions,Jacob should increase his basis in the Robin stock by $30,000.

Accepted Answer

Gains increase basis,while losses decrease basis.

Question 13

Darlene,a 30% shareholder in a calendar year S corporation,sells her stock on June 6,2014.If the corporation has an operating loss for 2014,none of this loss can be claimed by Darlene because she was not a shareholder as of December 31,2014.

Accepted Answer

A pro rata share of the loss will still pass through to Darlene for the period she was a shareholder.

Question 14

Under certain circumstances,an S corporation can have more than 100 shareholders.

Accepted Answer

Family members can elect to be treated as one shareholder for purposes of the number-of-shareholders limitation.

Question 15

A shareholder's basis in property received as a dividend is its fair market value on the date of the distribution.

Accepted Answer

According to the IRS, a shareholder's basis in property received as a dividend is its fair market value on the date of the distribution. This is true for both stock dividends and distributions of other property.

Question 16

As a separately stated item,the long-term capital losses of an S corporation will pass through to its shareholders as short-term capital losses.

Accepted Answer

The losses remain long-term to the shareholders.Do not be misled by the capital loss carryback and carryover rules applicable to the long-term capital losses of a C corporation.

Question 17

If the shareholders of a calendar year C corporation elect S status on Friday,March 14,2014,the election is effective for all of 2014.

Accepted Answer

To apply for 2014 for a calendar year taxpayer,the election must be made by the fifteenth day of the third month .

Question 18

The taxable income (or loss)of an S corporation is allocated to each shareholder on a per-share and per-day of stock ownership basis.

Accepted Answer

This is true according to IRS regulations for S corporations. The taxable income or loss is allocated to each shareholder based on their percentage of ownership and the number of days they held the stock during the corporation's tax year.

Question 19

The amortization of organizational expenditures and the dividends received deduction are allowed in determining the taxable income of an S corporation.

Accepted Answer

The amortization of organizational expenditures is allowed but the dividends received deduction is not.

Question 20

Examples of separately stated items of an S corporation include tax-exempt interest.

Accepted Answer

Tax-exempt interest is an example of separately stated items in an S corporation that must be reported separately to shareholders on their K-1 forms.

Quiz 20: Corporations and Partnerships