Which of the following statements regarding S corporations is true?
A) If an S corporation's election terminates, the corporation is forced to liquidate.
B) All states treat the S corporation as a taxable corporation for corporate franchise tax purposes.
C) Generally, the transfer of property by a controlling shareholder to a newly-formed S corporation in exchange for stock is a nontaxable event.
D) The owners of a new business should be indifferent between operating as an S corporation and a partnership.

Question

Quizplus · Accepted Answer

Generally, the transfer of property by a controlling shareholder to a newly-formed S corporation in exchange for stock is a nontaxable event. This is known as a tax-free incorporation. However, there are conditions that need to be met in order for the transaction to be nontaxable. The other statements are false. If an S corporation's election terminates, it can still continue to operate as a C corporation. States have different rules regarding S corporations and corporate franchise tax. The choice between operating as an S corporation or a partnership depends on the specific circumstances of the business and the preferences of the owners.

Which of the Following Statements Regarding S Corporations Is True