Question 1

Identify which of the following statements is true.

Accepted Answer

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

Question 2

Woods Corporation has operated as a C corporation for the last seven years.The corporation has assets with a $500,000 adjusted basis and a $700,000 FMV.Liabilities are $200,000.Wolf Woods,a calendar-year taxpayer,owns all of the Woods Corporation stock.The corporation has a June 30 year-end and uses the accrual method of accounting.In order to reduce his total combined corporate and personal federal income tax liability,Wolf's CPA has told him to convert the corporation to S corporation status.Wolf would like to complete the conversion on the last day of the corporation's tax year.What tax issues should Wolf and his CPA consider with respect to the S election?

Accepted Answer

The answer of Woods Corporation has operated as a C...

Question 3

Identify which of the following statements is true.

Accepted Answer

All the statements provided are true. A) The election for Sec. 179 expensing is made by the S corporation itself, not its shareholders. B) S corporations and partnerships both pass through certain items to their owners that must be separately stated. C) S corporations, unlike C corporations, cannot claim a dividends-received deduction because they pass their income directly to shareholders who then report the income on their personal tax returns.

Question 4

Potter Corporation reports the following results for the current year:
 $\begin{array}{ll}
\text { Operating income }&\$40,000\
\text { Dividend income } & 35,000 \
\text { Interest income } & 25,000 \
\text { Other expenses } & 25,000 \
\text { Passive income-related expenses } & 20,000
\end{array}$ At the end of the year,Potter's Subchapter C E&P is $50,000.What is the amount of Potter's excess net passive income?

Accepted Answer

The answer of Potter Corporation reports the following results for...

Question 5

Identify which of the following statements is true.

Accepted Answer

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

Question 6

When a Sec.444 fiscal-year election is made,the S corporation makes required payments to the IRS in order to continue to use the fiscal year as its tax year.Which of the following statements about the tax year is correct?

Accepted Answer

The answer of When a Sec.444 fiscal-year election is made,the...

Question 7

Bellows Corporation,a calendar-year taxpayer,has been an S corporation for ten years.Last year,John sold all the Bellows stock to Micky.Payments for the stock are to be made over a five-year period.In March of next year,Micky fails to make the necessary payments and John repossesses the stock.During the time Micky holds the stock,Bellows Corporation revokes its S election.Can Bellows Corporation reelect S status?

Accepted Answer

The answer of Bellows Corporation,a calendar-year taxpayer,has been an S...

Question 8

Which of the following items is not separately stated for an S corporation?

Accepted Answer

Section 1245 income is not separately stated for an S corporation; it is generally part of the ordinary business income.

Question 9

Power Corporation reports the following results:
 $\begin{array}{ll}
\text { Service income (not passive income) }&\$40,000\
\text { Dividend income } & 30,000 \
\text { Interest income } & 60,000 \
\text { Passive income-related expenses } & 20,000 \
\text { Other expenses } & 50,000
\end{array}$ At the end of the year,Power's Subchapter C E&P is $50,000.What is Power Corporation's excess net passive income and its excess net passive income tax for the year?

Accepted Answer

The answer of Power Corporation reports the following results:
 \(\begin{array}{ll}
\text...

Question 10

Zinc Corporation is created in the current year and promptly makes an S election.How much passive income can it earn this year without fear of losing its S corporation status or being subject to the Sec.1375 tax on excess net passive income?

Accepted Answer

The answer of Zinc Corporation is created in the current...

Question 11

Identify which of the following statements is true.

Accepted Answer

Each statement contains inaccuracies regarding tax regulations. A) The dividends-received deduction for a corporation receiving dividends from a 25%-owned domestic corporation is not 80%. B) NOL carryovers from a C corporation cannot be passed through to S corporation shareholders. C) Tax-exempt interest earned by an S corporation must be reported to its shareholders, even though it's excluded from gross income, for purposes of calculating basis and other tax attributes.

Question 12

The recognition period for the built-in gains tax extends for how many years after the S election takes effect?

Accepted Answer

The recognition period for the built-in gains tax extends for ten years after the S election takes effect. This period is designed to prevent corporations from avoiding corporate-level tax on appreciated assets by electing S corporation status.

Question 13

Chuck Corporation reports the following results for this year:
 $\begin{array}{ll}
\text { Service (nonpassive) income }&\$17,500\
\text { Dividend income } & 18,500 \
\text { Interest income } & 14,000 \
\text { Passive income-related expenses } & 5,000 \
\text { Other expenses } & 12,500
\end{array}$ At the end of this year,Chuck's E&P for its C corporation tax years amount to $30,000.Compute Chuck Corporation's excess net passive income.

Accepted Answer

The answer of Chuck Corporation reports the following results for...

Question 14

An S corporation is permitted to claim

Accepted Answer

S corporations can deduct certain costs associated with starting the business, including the amortization of organizational expenditures.

Question 15

Boxer Corporation,a C corporation,elects on June 30 of last year to make an S election for the current year.The net unrealized built-in gains at the beginning of the current year are $300,000.The net recognized built-in gains in the current year are $110,000.What is Boxer's built-in gains tax for the current year?

Accepted Answer

The answer of Boxer Corporation,a C corporation,elects on June 30...

Question 16

King Corporation,a cash method taxpayer that uses the calendar year as its tax year,was incorporated on June 1,1984.The corporation made its initial S election on December 1 of last year,effective for the current tax year.Earnings and profits of $60,000 have been retained from C corporation tax years.Which one of the following events results in the recognition of a built-in gain?

Accepted Answer

A built-in gain occurs when an S corporation sells an asset that was previously appreciated in value while the corporation was still a C corporation. In this case, since King Corporation made its initial S election on December 1 of last year, it would still have built-in gains on assets that appreciated in value prior to that date. Option A describes the collection of accounts receivable from services performed in the previous year, which would result in recognition of income and therefore a built-in gain. Options B and C do not involve the sale of assets and therefore would not result in recognition of a built-in gain. Option D is incorrect because as explained above, option A qualifies as a built-in gain event.

Question 17

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

An S corporation is generally required to use a permitted tax year, which is usually the calendar year. However, it may elect to use a fiscal year other than a permitted year under certain circumstances. One of the requirements for such an election is that the fiscal year elected must have a maximum deferral period of three months.

Question 18

Connie's Restaurant has been an S corporation since it was formed in 2006.Its results for the previous year are as follows:
 $\begin{array}{ll}
\text { Sales }&\$200,000\
\text { Supplies } & 90,000 \
\text { Salaries } & 50,000 \
\text { Depreciation } & 5,000 \
\text { Interest on business loan } & 1,000 \
\text { Charitable contributions } & 3,000 \
\text { Advertising } & 4,000 \
\text { Utilities expense } & 6,000 \
\text { Property taxes } & 1,000
\end{array}$ Gain on the sale of
 $\begin{array} { l  }
 \text {  investment land (long-term)}&8,000\
\end{array}$
 What are Connie's separately stated items? What is the S corporation's ordinary income?

Accepted Answer

The answer of Connie's Restaurant has been an S corporation...

Question 19

Tax-exempt interest earned by an S corporation is not reported to its shareholders because it is excluded from the shareholders' gross income.

Accepted Answer

Tax-exempt interest earned by an S corporation is reported to its shareholders on Schedule K-1 and must be included on their individual tax returns, even though it is not taxable. This information is necessary for various tax calculations, including the alternative minimum tax.

Question 20

Shanghai Corporation was organized and elected S status in the current year.How much passive investment income can Shanghai earn and retain its S status?

Accepted Answer

An S corporation can have passive investment income without a limit on the amount; however, if it has accumulated earnings and profits from a C corporation period and passive investment income exceeds 25% of gross receipts for three consecutive years, it can lose its S status.

Quiz 11: S Corporations

Identify which of the following statements is true.

Identify which of the following statements is true.

Identify which of the following statements is true.

When a Sec.444 fiscal-year election is made,the S corporation makes required payments to the IRS in order to continue to use the fiscal year as its tax year.Which of the following statements about the tax year is correct?

Which of the following items is not separately stated for an S corporation?

Zinc Corporation is created in the current year and promptly makes an S election.How much passive income can it earn this year without fear of losing its S corporation status or being subject to the Sec.1375 tax on excess net passive income?

Identify which of the following statements is true.

The recognition period for the built-in gains tax extends for how many years after the S election takes effect?

An S corporation is permitted to claim

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

Tax-exempt interest earned by an S corporation is not reported to its shareholders because it is excluded from the shareholders' gross income.

Shanghai Corporation was organized and elected S status in the current year.How much passive investment income can Shanghai earn and retain its S status?