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 carry the loss forward indefinitely.
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 carry the loss forward indefinitely.
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. 
For statement I, an S Corporation cannot carry forward its losses indefinitely. Losses can only be carried forward for up to 20 years.
For statement II, a regular corporation is not a flow-through entity. Losses are only deductible by shareholders if the corporation makes distributions to them.

Kenneth Owns All of the Stock of Kearney Corporation