Question 1

Like partnerships,S corporations generally determine their accounting periods and make accounting method elections at the entity level.

Accepted Answer

Like partnerships, S corporations are pass-through entities and therefore make accounting decisions at the entity level rather than at the individual shareholder level. This includes determining accounting periods and making accounting method elections.

Question 2

Corporations taxed as S corporations offer the same legal protection to owners as corporations taxed as C corporations.

Accepted Answer

S corporations and C corporations both offer limited liability protection to their owners, meaning that the owners' personal assets are generally protected from the corporation's debts and legal liabilities. Therefore, both types of corporations offer the same legal protection to owners.

Question 3

Publicly traded corporations cannot be treated as S corporations.

Accepted Answer

This is because S corporations have specific ownership requirements and restrictions that publicly traded corporations do not meet.

Question 4

An S election is terminated if the S corporation has passive investment income in excess of 20 percent of gross receipts for three consecutive years.

Accepted Answer

The answer of An S election is terminated if the...

Question 5

Differences in voting powers are permissible across shares of S corporation stock as long as the shares have identical distribution and liquidation rights.

Accepted Answer

This is a true statement according to the Internal Revenue Code. S corporation stock can have different voting powers as long as the shares have identical rights to distribution and liquidation proceeds.

Question 6

The same exact requirements for forming and contributing property govern S corporations and partnerships.

Accepted Answer

S corporations and partnerships are governed by different sets of tax rules and regulations regarding the formation, operation, and contribution of property. For example, the rules for contributing property to a partnership can result in a tax-free transaction under certain conditions (IRC Section 721), whereas contributing property to an S corporation may result in taxable gain if the transaction does not meet specific requirements (IRC Section 351).

Question 7

If an S corporation never operated as a C corporation,it may earn passive investment income without fear of an involuntary S election termination.

Accepted Answer

This statement is true. An S corporation can earn passive investment income without fear of losing its S corporation status as long as it never operated as a C corporation. This is because the IRS has a rule that if an S corporation ever operated as a C corporation, it must wait five years before making an S election again. However, if the S corporation has always been an S corporation, it can earn passive investment income without any issues.

Question 8

After terminating or voluntarily revoking S corporation status,a corporation may elect it again,but it generally must wait until the beginning of the third tax year after the tax year in which it terminated the election.

Accepted Answer

The answer of After terminating or voluntarily revoking S corporation...

Question 9

If an S corporation shareholder sells her stock to a nonresident alien,it will automatically terminate the S election.

Accepted Answer

The sale of stock to a nonresident alien will cause the termination of an S corporation election due to the violation of the shareholder eligibility requirements. Nonresident aliens are not permitted to be shareholders in an S corporation.

Question 10

The specific identification method and monthly allocation method are methods an S corporation may use to allocate its income across short tax years that result from an involuntary S election termination.

Accepted Answer

The specific identification method and monthly allocation method are generally associated with allocating income and deductions for tax purposes, but an involuntary S corporation election termination typically involves specific IRS rules and procedures for handling the termination and its tax implications, not these allocation methods. These methods are more commonly related to inventory accounting or other specific income allocation scenarios, not directly to S corporation status changes.

Question 11

To make an S election effective as of the beginning of the current year,an S corporation must file IRS Form 2553 within 3½ months after the beginning of the year.

Accepted Answer

The answer of To make an S election effective as...

Question 12

An S corporation can use a non-calendar year-end if it can establish a business purpose for an alternative year end.

Accepted Answer

According to the IRS, an S corporation can use a non-calendar year-end if it can establish a business purpose for an alternative year end. This can be done by filing Form 1128 with the IRS and providing a valid business reason for the change in accounting period.

Question 13

An S corporation can make a voluntary revocation of an S election if shareholders holding more than 25 percent of the S corporation stock (including nonvoting shares)agree.

Accepted Answer

The answer of An S corporation can make a voluntary...

Question 14

Like partnerships and C corporations,S corporations face the same restrictions on using the cash method of accounting.

Accepted Answer

The answer of Like partnerships and C corporations,S corporations face...

Question 15

An S corporation election may be voluntarily or involuntarily terminated.

Accepted Answer

An S corporation election may be voluntarily terminated by the shareholders or involuntarily terminated by the IRS for various reasons, such as failure to meet eligibility requirements or failure to comply with S corporation rules.

Question 16

Bobby T (75% owner)would like to terminate the S corporation status for DJ,Inc.but Dallas (5% owner)does not want to terminate the S corporation status.Bobby T can terminate the S status for DJ,Inc.without Dallas's consent.

Accepted Answer

According to the rules for S corporations, a majority shareholder (in this case, Bobby T with 75%) can decide to terminate the S corporation status without the consent of minority shareholders (such as Dallas with 5%). Therefore, Bobby T can terminate the S status for DJ, Inc. even if Dallas does not want to.

Question 17

Bobby T (95% owner)would like to elect S corporation status for DJ,Inc.but Dallas (5% owner)does not want to elect S corporation status.Bobby T cannot elect S status for DJ,Inc.without Dallas's consent.

Accepted Answer

According to IRS rules, all shareholders must give their consent to elect S corporation status for the corporation. Therefore, Bobby T cannot elect S status for DJ, Inc. without Dallas's consent as he holds 5% of the ownership.

Question 18

S corporations may have no more than 50 shareholders,but members of the same family only count as one shareholder.

Accepted Answer

S corporations are limited to 100 shareholders, and family members can be treated as a single shareholder under specific conditions, but the general rule is that each person counts as an individual shareholder unless they elect to be treated as a single shareholder.

Question 19

The specific identification method is a method an S corporation may use to allocate its income across short tax years that result from an involuntary S election termination.

Accepted Answer

This statement is true. The specific identification method is one of the methods that can be used by an S corporation to allocate income in the event of a short tax year resulting from an involuntary termination of its S election. This method allows the corporation to identify and allocate specific items of income, gain, loss, or deduction to the portion of the short year before its termination.

Question 20

The S corporation rules are less complex for S corporations that have earnings and profits from prior C corporation years than for S corporations that do not have earnings and profits from prior C corporation years.

Accepted Answer

S corporations with earnings and profits from prior C corporation years face more complex rules, particularly concerning distributions and the potential for double taxation, than S corporations without such earnings and profits.

Quiz 11: S Corporations