Identify which of the following statements is true.

Question

Quizplus · Accepted Answer

Option A is false because a corporation that canceled its preferred stock in a recapitalization cannot make an S election in the same tax year. This is because the S corporation rules only allow one class of stock outstanding at a time, and a recapitalization in the same year would still result in the corporation having more than one class of stock.

Option C is false because while S corporations are also called small business corporations, not all small business corporations can make an S election. There are specific criteria that a corporation must meet to qualify for S corporation status.

Option D is false because option B is true. An S corporation should have a buy-sell agreement to protect itself from an ill-advised sale of its stock. This agreement can outline the terms of a stock sale in the event of an owner's death, disability, or desire to leave the business.

Identify Which of the Following Statements Is True