Question 1

Identify which of the following statements is false.

Accepted Answer

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

Question 2

The election of Subchapter S status by a corporation is valid only if all shareholders consent to the election.

Accepted Answer

For a corporation to elect Subchapter S status, all shareholders must consent to the election, ensuring that they are all in agreement with the tax implications and requirements of operating as an S corporation.

Question 3

Identify which of the following statements is true.

Accepted Answer

A) This statement is false. In order to revoke an S election, only a majority of shareholders needs to consent. 
B) This statement is true. Excess passive income only results in termination of S status if the corporation has accumulated Subchapter C E&P from a previous C corporation status. 
C) This statement is false. A revocation of an S corporation election can only be prospective, not retrospective. 
D) This statement is false since only B) is true.

Question 4

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. The S corporation must meet this test each year to maintain its status as an S corporation.

Question 5

If an S corporation inadvertently terminates its election, the IRS

Accepted Answer

The IRS may permit the corporation to report as an S corporation even for the period that includes the termination date. It is possible to apply for relief under the IRS's certain relief provisions, such as the automatic relief provision, and may be granted relief from a penalty resulting from the termination of the S election. However, it is important for corporations to take action to correct the termination as soon as possible to avoid any potential negative consequences.

Question 6

Identify which of the following statements is true.

Accepted Answer

Option A is false because only corporations with one class of stock can make an S election. Option C is false because not all small business corporations can make an S election. Option D is false because option B is true.

Question 7

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

Accepted Answer

The best choice is D. The termination of an S election due to a failure to meet the passive investment income test and the Subchapter C E&P balance will likely be treated as inadvertent, and the IRS will probably approve a continued S election if the corporation distributes the Subchapter C E&P.

Question 8

Which of the following would terminate a Subchapter S election?

Accepted Answer

According to the IRS, if a partnership becomes a shareholder in an S corporation, it would terminate the S election. The other options (voting trust, grantor trust, and estate becoming a shareholder) would not terminate the S election.

Question 9

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

The S corporation election must be made by the 15th day of the third month of the tax year in which the election is to be effective. For C corporations using a fiscal year, this is the 15th day of the third month of their fiscal year. Therefore, if the C corporation wants to make an S election for its tax year beginning in the current year, the election must be made by September 15 of the current year.

Question 10

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 15 of the next year, as per the general rule for S corporations. However, the C short-year return will be due on September 15 of the current year, as it is a fiscal year corporation with a year-end of June 30.

Question 11

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...

Question 12

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

Accepted Answer

Failing to file a timely tax return could lead to penalties, but it would not cause an S election to be terminated. The other options (A, C, D) could result in termination of the S election.

Question 13

Garret and Hans own all the stock of GH Corporation. Garret sells all his GH stock to Olga on February 12. The next day, GH makes an S election. For the election to apply to the current year, who must consent to the election?

Accepted Answer

The answer of Garret and Hans own all the stock...

Question 14

Swamp Corporation, a calendar- year taxpayer, has been an S corporation for several years. However, the corporation has become quite profitable, and management feels that it would be advantageous to make a public stock offering. What are Swamp Corporation's options concerning the date of revocation of the S election?

Accepted Answer

The answer of Swamp Corporation, a calendar- year taxpayer, has...

Question 15

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 16

All shareholders must consent to the revocation of S status.

Accepted Answer

Only a majority of the shareholders' consent is required to revoke the S corporation status, not all shareholders.

Question 17

A corporation must make an S election for the current year after March 15 in the case of a calendar- year corporation.

Accepted Answer

A corporation must make an S election by March 15 in order for it to become effective for the current year. After March 15, the election will be effective for the following tax year.

Question 18

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 answer of Davies Corporation is a calendar- year taxpayer...

Question 19

Identify which of the following statements is true.

Accepted Answer

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

Question 20

Even if the termination of an S election is considered to be inadvertent, the election to terminate is irrevocable.

Accepted Answer

If the termination of an S election is considered inadvertent, the IRS may allow the corporation to retain its S corporation status, provided certain conditions are met and corrective actions are taken.

Quiz 11: S Corporations

Identify which of the following statements is false.

The election of Subchapter S status by a corporation is valid only if all shareholders consent to the election.

Identify which of the following statements is true.

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

If an S corporation inadvertently terminates its election, the IRS

Identify which of the following statements is true.

Which of the following would terminate a Subchapter S election?

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

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

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

Garret and Hans own all the stock of GH Corporation. Garret sells all his GH stock to Olga on February 12. The next day, GH makes an S election. For the election to apply to the current year, who must consent to the election?

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?

All shareholders must consent to the revocation of S status.

A corporation must make an S election for the current year after March 15 in the case of a calendar- year corporation.

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?

Identify which of the following statements is true.

Even if the termination of an S election is considered to be inadvertent, the election to terminate is irrevocable.