Kenneth owns all of the stock of Kearney Corporation.Kenneth is also the President of Kearney and works full-time running the corporation.During the current year,Kearney has a loss of $40,000 from its operations.
I.If Kearney is an S Corporation,the corporation may carryback the loss 2 years (and obtain a refund of taxes paid)with any remaining loss carried forward 20 years.
II.If Kearney is a regular corporation,Kenneth may deduct the loss for AGI on his personal tax return because the corporation is a flow through entity.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question

Kenneth owns all of the stock of Kearney Corporation.Kenneth is also the President of Kearney and works full-time running the corporation.During the current year,Kearney has a loss of $40,000 from its operations.
I.If Kearney is an S Corporation,the corporation may carryback the loss 2 years (and obtain a refund of taxes paid)with any remaining loss carried forward 20 years.
II.If Kearney is a regular corporation,Kenneth may deduct the loss for AGI on his personal tax return because the corporation is a flow through entity.
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A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Quizplus · Accepted Answer

Neither statement is correct. Statement I is incorrect because S Corporations do not have the option to carryback losses. Instead, any losses can only be carried forward. Statement II is incorrect because regular corporations are not flow-through entities. Instead, they are subject to double taxation, with the corporation paying taxes on its income and shareholders paying taxes on any dividends received. Kenneth, as the sole shareholder in Kearney, would only be able to deduct losses on his personal tax return if the corporation was organized as an S Corporation.

Kenneth Owns All of the Stock of Kearney Corporation