Deck 22: S Corporations

Question 1

Straight debt issued in an S corporation year will not be treated as a second class of stock and will not disqualify an S election.

Answer 1

False

Question 2

A limited liability company can make an S election.

Answer 2

True

Question 3

For S corporation status to apply in the current tax year,the election must be filed during the grace period before the 15th day of the third month of the current year.

Answer 3

False

Question 4

An S election allows shareholders to realize tax benefits from losses immediately.

Question 5

A widower and his spouse's estate are treated as one shareholder.

Question 6

The alternative minimum tax may apply to an S corporation.

Question 7

Differences in distribution or liquidation rights among shareholders do not create a second class of stock.

Question 8

Most Roth IRAs can own S corporation stock.

Question 9

A maximum dollar sales limitation applies to an S corporation.

Question 10

Rents always are considered to be passive investment income in S status.

Question 11

Liabilities affect owners' basis differently between a partnership and an S corporation.

Question 12

There is no limit on the amount of passive investment income that an S corporation can receive during the year.

Question 13

An S corporation can be a partner in a partnership.

Question 14

The alternative minimum tax does not apply to an S corporation.

Question 15

An NOL from a Subchapter C year can be used to offset operating income in an S corporation year.

Question 16

A former spouse is treated as being in the same family as the individual to whom he or she was married.

Question 17

A voluntary revocation of an S election requires only a consent of shareholders owning a majority of shares on the day that the revocation is made.

Question 18

A corporation can revoke its S status prospectively.

Question 19

An estate can be an S corporation shareholder.

Question 20

A limited liability company can own S corporation stock.

Question 21

An S corporation can take advantage of the dividends received deduction.

Question 22

An S corporation's separately stated items are identical to those separately stated by partnerships.

Question 23

A per-day,per-share allocation of flow-through S corporation items must be used,unless the shareholder disposes of the entire interest in the entity.

Question 24

An S corporation that has total assets of at least $5 million on Schedule L at the end of the tax year must file a Schedule M-3.

Question 25

An S shareholder's basis is increased by stock purchases and capital contributions.

Question 26

Depreciation recapture income is a Schedule K item.

Question 27

When loss assets are distributed by an S corporation,a shareholder's basis is equal to the asset's fair market value.

Question 28

An item that appears in the "Other Adjustments Account" affects stock basis,but not AAA,such as tax-exempt life insurance proceeds.

Question 29

A distribution of cash or other property by an S corporation to shareholders that does not exceed the balance of AAA during a one-year period following an S election termination receives special capital gain treatment.

Question 30

A distribution from OAA is taxable.

Question 31

Tax-exempt income is a Schedule K item for an S corporation.

Question 32

An S shareholder who dies during the corporate tax year must report his or her share of the pro rata income (or loss)up to the date of death on the final individual tax return.

Question 33

The Section 179 expense deduction is a Schedule K item.

Question 34

The Schedule M-3 is the same for a C corporation and an S corporation.

Question 35

All tax preference items flow through the S corporation,to be included in the shareholders' AMT calculations.

Question 36

A capital loss allocated to a shareholder always reduces the other adjustments account.

Question 37

Tax-exempt income is not separately stated on Schedule K of Form 1120S.

Question 38

An S corporation does not recognize a loss when distributing assets that are worth less than their basis.

Question 39

Post-termination distributions that are charged against OAA do not get tax-free treatment.

Question 40

Any distribution of cash or property by a corporation that does not exceed the balance of AAA with respect to the stock during a post-termination transition period of approximately one year is applied against and reduces the adjusted basis of the stock.

Question 41

Pass-through S corporation losses can reduce the basis in the shareholder's loan to the entity,but distributions do not.

Question 42

Any excess of S corporation losses or deductions over the shareholder's combined stock and debt basis is suspended until there is a subsequent stock or debt basis.

Question 43

Which statement is false?

A) S corporations are treated as corporations under state law.
B) The alternative minimum tax applies to an S corporation.
C) Liabilities affect S shareholders differently than partners.
D) S corporations may not allocate income like partnerships.
E) None of the above.

Question 44

The § 1202 exclusion of gain is available on disposition of S corporation stock.

Question 45

An S shareholder's basis in his or her stock can be reduced below zero.

Question 46

An S shareholder's stock basis is reduced by flow-through losses before accounting for distributions.

Question 47

An S corporation may be subject to the following tax:

A) Corporation income tax (§ 11).
B) Passive investment income tax.
C) Alternative minimum tax.
D) None of the above applies to S corporations.

Question 48

Compensation for services rendered to an S corporation is subject to FICA taxes.

Question 49

Any losses that are suspended under the at-risk rules are carried forward and are available during an S corporation's post-termination period.

Question 50

An S corporation is entitled to a deduction for its NOL carryovers.

Question 51

The LIFO recapture tax is a variation of the passive investment income penalty tax.

Question 52

Passive investment income includes net capital gains from the sale of stocks and securities.

Question 53

An S corporation shareholder's basis includes his or her direct investments plus a ratable share of any corporate liabilities.

Question 54

An S shareholder's basis is decreased by distributions treated as being paid from AAA.

Question 55

Form 1120S provides a shareholder's computation of his or her stock basis.

Question 56

Any distribution made by an S corporation during a tax year is taken into account before accounting for the year's losses.

Question 57

An S shareholder's stock basis includes a ratable share of any S corporation liabilities.

Question 58

It is beneficial for an S corporation to issue § 1244 stock.

Question 59

The § 1374 tax is a corporate-level tax on any built-in gain recognized in 2011 when an S corporation disposes of an asset in a taxable disposition within 7 tax years after the date on which the S election took effect.

Question 60

The carryover period for the NOLs of a C corporation continues to run during S corporation years.

Question 61

An S corporation must possess the following characteristic(s):

A) No more than 100 shareholders.
B) Corporation organized in the U.S.
C) Only one class of stock.
D) All of the above are required of S corporations.
E) None of the above is required for S corporations.

Question 62

Which,if any,of the following can be an eligible shareholder of an S corporation?

A) A resident alien.
B) Limited liability company.
C) A foreign corporation.
D) A Roth IRA.
E) None of the above can own S corporation stock.

Question 63

Which statement is true?

A) Charitable contributions are subject to the 10% limitation at the corporate level.
B) The at-risk rules apply to S corporations.
C) The passive loss limitations do not apply to S corporations.
D) S corporations are exempted from state and local taxes.
E) None of the above.

Question 64

Several individuals acquire assets on behalf of Skip Corporation on May 28,2011,purchased assets on June 3,2011,and begin doing business on June 11,2011.They subscribe to shares of stock,file articles of incorporation for Skip,and become shareholders on June 21,2011.The S election must be filed no later than 2 1/2 months after:

A) May 28, 2011.
B) June 3, 2011.
C) June 11, 2011.
D) June 21, 2011.
E) December 31, 2011.

Question 65

Which,if any,of the following is not an eligible shareholder of an S corporation?

A) A child, age 9.
B) Spouse of a nonresident alien in a community property state.
C) A voting trust.
D) An estate of a deceased shareholder.
E) All of the above can own S corporation stock.

Question 66

Which item does not appear in an S corporation's nonseparately computed income?

A) Net sales.
B) Tax-exempt income.
C) Cost of goods sold.
D) Depreciation recapture.
E) All of the above appear.

Question 67

Which statement is false?

A) Partnership taxation rules do not apply to S corporations.
B) A two-or-more member LLC operates under partnership principles.
C) All income of an S corporation flows through to the S shareholders.
D) S shareholders may use their proportionate shares of NOLs currently.
E) None of the above.

Question 68

The maximum number of S shareholders is:

A) 75.
B) 100.
C) 200.
D) Some other fixed amount.
E) Indeterminable.

Question 69

Which item does not appear on Schedule K of Form 1120S?

A) Tax-exempt interest income.
B) Depreciation recapture income.
C) Section 179 expense deduction.
D) Section 1231 loss.
E) All of the above appear on Schedule K.

Question 70

Which could constitute a second class of stock under the S corporation rules?

A) Treasury stock.
B) Phantom stock.
C) Unexercised stock options.
D) Warrants.
E) None of the above.

Question 71

Which item has no effect on an S corporation's AAA?

A) Capital loss.
B) Administrative expenses.
C) Cost of goods sold.
D) Stock purchase by a shareholder.
E) All of the above modify AAA.

Question 72

Which statement is incorrect with respect to filing for an S election?

A) Form 2553 must be filed.
B) All shareholders must consent.
C) The election may be filed in the previous year.
D) An extension of time is available for filing Form 2553.
E) None of the above are incorrect.

Question 73

Which could constitute a second class of stock under the S corporation rules?

A) Unissued stock.
B) Treasury stock.
C) Stock appreciation rights.
D) Convertible debentures.
E) None of the above.

Question 74

Which event will not terminate an S election?

A) Receipt of passive income.
B) Share of stock given to a nonresident alien.
C) Shares of stock given to a corporation.
D) A second class of stock issued.
E) All of the above terminate an election.

Question 75

Which is ineligible to be an S shareholder?

A) Individual.
B) Estate.
C) Partnership.
D) Spouse of a nonresident alien (common law state).
E) None of the above.

Question 76

Which item does not appear on Schedule K of Form 1120S?

A) Intangible drilling costs.
B) Foreign loss.
C) Recovery of a tax benefit.
D) Interest expense.
E) All of the above appear on Schedule K.

Question 77

Which statement is false?

A) S corporation status provides many of the benefits of partnership treatment.
B) S corporation shareholders have limited liability.
C) Distributions of appreciated assets are not taxable in an S corporation.
D) The personal holding company tax does not apply to an S corporation.
E) None of the above.

Question 78

Identify a disadvantage of S corporation status.

A) Most trusts can be shareholders.
B) Losses flow through to the shareholders.
C) The ACE adjustment is avoided.
D) Tax-exempt income flows through to the shareholders.
E) None of the above is a disadvantage of the S election.

Question 79

Which statement is incorrect with respect to an S shareholder's consent?

A) An S election requires a consent from all of the S corporation's shareholders.
B) Both husband and wife must consent if one owns the stock as community property.
C) A consent extension is available only if Form 2553 is filed on a timely basis, reasonable cause is given, and the interests of the government are not jeopardized.
D) A consent must be in writing.
E) None of the above statements is incorrect.

Question 80

What method is automatically used to allocate income or losses (unless an election is made)?

A) Short-year method.
B) Long-year method.
C) Per-day allocation.
D) FIFO method.
E) LIFO method.