Which of the following is NOT a key rule for election of the S-corporation option?
A) The S-corporation may have no more than 100 shareholders.
B) Shareholders must be U.S. citizens or residents.
C) Profits and losses must be allocated in proportion to each shareholder's interest.
D) Both active and passive S-corporation shareholders are subject to payroll tax.
E) A shareholder may not deduct losses in an amount greater than the original investment.

Question

Which of the following is NOT a key rule for election of the S-corporation option?
A) The S-corporation may have no more than 100 shareholders.
B) Shareholders must be U.S. citizens or residents.
C) Profits and losses must be allocated in proportion to each shareholder's interest.
D) Both active and passive S-corporation shareholders are subject to payroll tax.
E) A shareholder may not deduct losses in an amount greater than the original investment.

Quizplus · Accepted Answer

The key rule that is NOT correct for the election of the S-corporation option is that both active and passive S-corporation shareholders are subject to payroll tax. In reality, only the salaries of active shareholders (those who work for the corporation) are subject to payroll taxes, while passive shareholders are not subject to these taxes on their share of the corporation's profits.

Which of the Following Is NOT a Key Rule for Election