Chapter 11
C) make the S election at any time
Alligood Corporation has two classes of common stock outstanding. The Class A and Class B common stock give the shareholders identical rights and interests in the profits and assets of the corporation. Class A stock has one vote per share. Class B stock is nonvoting. Alligood Corporation may A) not make the S election due to different voting rights. B) make the S election once the Class B is retired. C) make the S election at any time. D) not make the S election due to two classes of stock.
C) group term life insurance premiums
An S corporation is not treated as a corporate taxpayer with respect to which one of the following fringe benefits? A) stock options B) qualified retirement plans C) group term life insurance premiums D) nonqualified deferred compensation
D) six months.
An S corporation is permitted an automatic extension of time for filing its tax return. The automatic extension period is A) one month. B) two months. C) three months. D) six months.
D) 2015.
April Corporation's Subchapter S election was voluntarily terminated for 2010. The first year that April would be eligible to reelect S corporation status is A) 2012. B) 2013. C) 2014. D) 2015.
D) a charitable remainder unitrust
Mary, a U.S. citizen, owned 25% of the stock of Floran Corporation, an electing S corporation. At the time of her death, the Floran stock may go to all the following without affecting the S election except A) her estate. B) a testamentary trust. C) a small business trust. D) a charitable remainder unitrust
B) September 15
Mashburn Corporation is an S corporation that uses a fiscal year ending June 30 as its tax year. When is Mashburn Corporation's income tax return due? A) July 15 B) September 15 C) October 15 D) March 15 of the next year
C) March 15 of the next year.
On June 30 of the current year, the S election of Great Corporation is terminated, thus creating a six-month S short year and a six-month C short year. Great Corporation is a calendar-year taxpayer. The S short-year return is due A) September 15. B) December 15. C) March 15 of the next year. D) June 30 of the next year.
A) AAA; E&P
Pressley Corporation was incorporated on January 1, 2004. The corporation made its S election on March 1, 2008. The corporation retains an E&P balance from its C corporation days. During the current year, it made a cash distribution to its sole shareholder Robert Pressley. What is the proper sequence in reducing the corporate earnings accounts for the distribution? A) AAA; E&P B) AAA; OAA; E&P C) E&P; AAA D) AAA; PTI; E&P
D) annually.
The passive income test relating to an S corporation election is applied A) daily. B) monthly. C) quarterly. D) annually.
D) ten years
The recognition period for the built-in gains tax extends for how many years after the S election takes effect? A) one year B) three years C) five years D) ten years
B) 111
Train Corporation is an S corporation that is owned equally by Carlos and Diane at the beginning of the year. On April 21 (the 111th day of Train's tax year) of the current year, Carlos sells all of his Train Corporation stock to Andre. How many days will be used when computing Carlos's share of S corporation income for this year (a non-leap year), assuming that a special income allocation election is not made? A) 110 B) 111 C) 254 D) 255
B) Allocation of tax preference items for AMT generally occurs on a daily basis.
1) Identify which of the following statements is true. A) An S corporation may be subject to the corporate alternative minimum tax. B) Allocation of tax preference items for AMT generally occurs on a daily basis. C) An S corporation may be subject to the corporate alternative minimum tax when the corporation has accumulated E&P from prior C corporation tax years. D) All of the above are false.
B) September 15 of the current year
A C corporation was formed five years ago and is a fiscal-year taxpayer with a June 30 year-end. The C corporation wants to make an S election for its tax year beginning in the current year. The election must be made by ________ (assuming permission can be obtained to continue using the fiscal year from the IRS). A) June 30 of the current year B) September 15 of the current year C) June 30 of the next year D) September 15 of the next year
C) a deduction based on the amortization of organizational expenditures.
An S corporation is permitted to claim A) the dividends-received deduction. B) a personal exemption. C) a deduction based on the amortization of organizational expenditures. D) a net operating loss.
A) $140,000
An S corporation reports ordinary income of $120,000 after deducting $20,000 for Fred's salary. Fred and his three children own the S corporation equally. The IRS determines Fred's stock transfer to his three children is not bona fide. Reasonable compensation for Fred is $40,000. How much of the S corporation's $140,000 pre-salary income must be reported by Fred? A) $140,000 B) $100,000 C) $50,000 D) $40,000
B) $15,000
An electing S corporation has a $30,000 ordinary loss for the non-leap year. On January 1, Beverly and Sonya own equally all of the S corporation stock. On the 146th day of the year, Beverly gives her one-half of the S corporation stock to her daughter Becky. How much of the $30,000 ordinary loss is allocated to Sonya? A) $25,000 B) $15,000 C) $10,000 D) $6,000
C) $6,000
An electing S corporation has a $30,000 ordinary loss for the nonleap year. On January 1, Beverly and Sonya own equally all of the S corporation stock. On the 146th day of the year, Beverly gives her one-half of the S corporation stock to her daughter Becky. How much of the $30,000 ordinary loss is allocated to Beverly? A) $25,000 B) $15,000 C) $6,000 D) $5,959
C) three months.
For an S corporation to elect to use a fiscal year other than a permitted year, the fiscal year elected must have a maximum deferral period of A) one month. B) two months. C) three months. D) six months.
C) $100,000
Cactus Corporation, an S Corporation, had accumulated earnings and profits of $100,000 at the beginning of 2008. Tex and Shirley each own 50% of the stock. Cactus does not make any distributions during 2008, but had $200,000 of ordinary income. In 2009, ordinary income was $100,000 and distributions were $100,000. What is Tex's ordinary income for 2008? A) $0 B) $50,000 C) $100,000 D) $200,000
B) $50,000
Cactus Corporation, an S Corporation, had accumulated earnings and profits of $100,000 at the beginning of 2011. Tex and Shirley each own 50% of the stock. Cactus does not make any distributions during 2011, but had $200,000 of ordinary income. In 2012, ordinary income was $100,000 and distributions were $100,000. What is Tex's ordinary income for 2012? A) $0 B) $50,000 C) $100,000 D) $200,000
B) $150,000
Cactus Corporation, an S corporation, had accumulated earnings and profits of $100,000 at the beginning of 2009. Tex and Shirley each own 50% of the stock and have a basis in their stock of $50,000 on January 1, 2009. Cactus does not make any distributions during 2009, but had $200,000 of ordinary income. In 2010, ordinary income was $100,000 and distributions were $100,000. What is Tex's basis at January 1, 2011? A) $100,000 B) $150,000 C) $200,000 D) $250,000
D) None of the above statements are correct.
Davies Corporation is a calendar-year taxpayer that is owned equally by Vivian, Rob, Danny, and Doug Davies. At the close of business on May 31, Rob Davies sells his 25% stock interest to Paula Bryan. Which of the following statements about the S election is correct? A) Paula must consent to the S election, otherwise the election terminates at the close of business on May 31. B) A new S election form must be filed by June 30 of the same year, with all shareholders consenting to the election. If a new S election is not filed, the election terminates on June 30 of that year. C) Paula has 30 days to terminate the S election, otherwise the election remains in place for the entire year and all subsequent years. D) None of the above statements are correct.
C) October 31 of next year.
Dilley Corporation is an electing S corporation that uses a calendar year as its tax year. On October 31, Dilley's S election is terminated because of the acquisition of stock by an ineligible stockholder. Dilley Corporation shareholder Alan is allocated an S corporation loss for the year, which cannot be used because of the basis limitation. Alan will lose the unused loss if not used by A) December 31 of this year. B) March 15 of next year. C) October 31 of next year. D) December 31 of next year.
B) tax-exempt bond interest income
Dixon Corporation was incorporated on January 1, 2005. The corporation made its S election on April 1, 2008. The corporation retains an E&P balance from its C corporation days. Which one of the following current-year income and expense items is not included in Dixon Corporation's Accumulated Adjustments Account? A) ordinary income or loss B) tax-exempt bond interest income C) long-term capital gains and losses D) amortization of organizational expenditures
C) Yes, if Sergei will also join in the election with Helmut and Nils
Helmut and Sergei own all the stock of Zappo Corporation, a calendar-year domestic corporation. On January 30 of the current year, Sergei sells his entire interest in the Zappo stock to Nils. All three individuals are U.S. citizens. Can an S election be made for the current year? A) not for the current year but for the next year B) Yes, if Helmut and Nils agree to report all of the corporation's income for the entire year C) Yes, if Sergei will also join in the election with Helmut and Nils D) Yes, if Helmut and Nils agree to file a short-period return and Sergei also agrees to the return
C) If an S election is terminated and the termination is not considered to be inadvertent, a ten-tax-year waiting period is required before making a new election.
Identify which of the following statements is false. A) A C corporation short-year income tax liability must be determined on an annualized basis. B) If the termination of an S election is considered to be inadvertent, then the election is permitted to continue in place as if the termination had never occurred. C) If an S election is terminated and the termination is not considered to be inadvertent, a ten-tax-year waiting period is required before making a new election. D) A corporation can obtain relief for a late S election if the IRS consents.
A) An S corporation files a Form 1120S corporate income tax return on or before the 15th day of the fourth month following the close of its tax year.
Identify which of the following statements is false. A) An S corporation files a Form 1120S corporate income tax return on or before the 15th day of the fourth month following the close of its tax year. B) An S corporation's ordinary income or loss is reported by an individual shareholder on Schedule E of Form 1040. C) An S corporation that owes the built-in gains tax or the excess net passive income tax must make quarterly estimated tax payments. D) An S corporation cannot use the prior-year tax liability exception when determining the required payment to be made with respect to the built-in gains tax.
B) A shareholder's S corporation stock basis will increase when the shareholder acts as guarantor on a corporate indebtedness.
Identify which of the following statements is false. A) Randy is a shareholder in an S corporation. His stock basis is $10,000 and his basis in a loan he made to the corporation is $3,000. Randy's share of the corporation's ordinary loss for the current year is $11,000. Ignoring the at-risk and passive activity limitations, Randy can deduct the loss in full. B) A shareholder's S corporation stock basis will increase when the shareholder acts as guarantor on a corporate indebtedness. C) A shareholder's ratable share of the S corporation's ordinary loss reduces the adjusted basis of his/her S corporation stock. Once the basis of the stock is reduced to zero, any loss-passthrough that remains reduces the basis of S corporation debts that are owed to the shareholder. D) Debt basis is restored before stock basis.
C) Nonmoney property distributions made by an S corporation having accumulated E&P are treated differently when determining the corporate-level gain recognized under Sec. 311 than are property distributions made by an S corporation without accumulated E&P.
Identify which of the following statements is false. A) The AAA balance can be negative, but the shareholder's basis in the S corporation stock cannot be less than zero. B) The AAA represents the cumulative income/loss recognized in post-1982 S corporation years. C) Nonmoney property distributions made by an S corporation having accumulated E&P are treated differently when determining the corporate-level gain recognized under Sec. 311 than are property distributions made by an S corporation without accumulated E&P. D) Tax-exempt income does not increase the AAA but increases the basis of the S corporation stock.
B) An S election is filed by the corporation by using Form 2553 on or before the due date (without regard to any extensions) for the corporate tax return for the tax year in question.
Identify which of the following statements is false. A) The election form can be signed by a person authorized to sign the S corporation tax return. B) An S election is filed by the corporation by using Form 2553 on or before the due date (without regard to any extensions) for the corporate tax return for the tax year in question. C) An S corporation must file a tax return for any year in which the S corporation is in existence. D) The IRS can grant extensions of time of filing shareholder consents to the S election.
C) An S corporation can have more than 100 shareholders, since families are treated as a single shareholder.
Identify which of the following statements is true. A) A partnership can be an S corporation shareholder. B) A nonresident alien can be an S corporation shareholder. C) An S corporation can have more than 100 shareholders, since families are treated as a single shareholder. D) All of the above are false.
C) A testamentary trust can be converted into a QSST trust
Identify which of the following statements is true. A) A trust can own S corporation stock and have a C corporation as a beneficiary as long as the corporation is the sole beneficiary. B) A QSST is an arrangement whereby the stock owned by a number of shareholders is placed under trust control for purposes of exercising the stock voting rights. C) A testamentary trust can be converted into a QSST trust. D) All of the above are false.
C) An S election will not be terminated due to excess passive income if the corporation does not have Subchapter C E&P.
Identify which of the following statements is true. A) All of the shareholders of an S corporation must consent to a revocation of the S election. B) A revocation of an S corporation election can be retrospective to any date. C) An S election will not be terminated due to excess passive income if the corporation does not have Subchapter C E&P. D) All of the above are true.
C) An S corporation that owns all of the stock of a Qualified Subchapter S Subsidiary (QSub) must report all the income, deductions, and losses of the subsidiary on its own tax return.
Identify which of the following statements is true. A) An S corporation cannot own any stock of another corporation. B) An S corporation cannot own 100% of the stock of another S corporation. C) An S corporation that owns all of the stock of a Qualified Subchapter S Subsidiary (QSub) must report all the income, deductions, and losses of the subsidiary on its own tax return. D) All of the above are true.
A) An S corporation should have a buy-sell agreement to guard itself against an ill-advised sale of its stock.
Identify which of the following statements is true. A) An S corporation should have a buy-sell agreement to guard itself against an ill-advised sale of its stock. B) The terms "small business corporation" and "S corporation" are synonymous. C) A regular corporation has common and preferred stock outstanding on January 1. On January 2, the preferred stock is canceled in a recapitalization, leaving only common stock outstanding. The corporation can make an S election for this tax year. D) All of the above are false.
D) All of the above are true.
Identify which of the following statements is true. A) An election for an S corporation to use the Sec. 179 expensing election is made by the corporation and not by its shareholders. B) The S corporation's separately stated items are in general the same ones that apply in partnership taxation. C) An S corporation cannot claim a dividends-received deduction. D) All of the above are true.
D) All of the above are true.
Identify which of the following statements is true. A) Beach Corporation, an S corporation, has gross receipts of $240,000; taxable income of $120,000; passive investment income of $100,000; and expenses directly attributable to the passive investment income of $20,000. The corporation's excess net passive income is $32,000. B) The built-in gains tax applicable to S corporations can be avoided if the property is held for ten years. C) An S corporation generally will not owe the built-in gains tax if the corporation has never been a C corporation. D) All of the above are true.
A) Convertible debt issues might be considered "stock" for purposes of the S corporation single class of stock requirement.
Identify which of the following statements is true. A) Convertible debt issues might be considered "stock" for purposes of the S corporation single class of stock requirement. B) The S election must be made no later than the fifteenth day of the fourth month of the tax year for which the election is to be effective. C) A majority of shareholders must consent to the S corporation election. D) All of the above are false.
B) A shareholder owning 2% or more of an S corporation's stock, who is also an employee of the corporation, must include all statutory fringe benefits in gross income on his/her individual return.
Identify which of the following statements is true. A) Fringe benefits limited by the more-than-2%-shareholder rule include stock options, group term life insurance premiums, and medical insurance premiums. B) A shareholder owning 2% or more of an S corporation's stock, who is also an employee of the corporation, must include all statutory fringe benefits in gross income on his/her individual return. C) Section 318 stock attribution rules are used to define 2% or more shareholders of S corporation's stock. D) All of the above are false.
C) When an S corporation's shares are sold by a shareholder during a tax year, the transferee's share of the earnings is reported from the day after the transfer date through the end of the tax year.
Identify which of the following statements is true. A) Long-term capital gains may be subject to double taxation if the gains are subject to both the excess net passive income tax rules and the built-in gains tax rules. B) Special allocations of ordinary income or loss and separately stated items that are available for partnerships are also permitted with S corporations. C) When an S corporation's shares are sold by a shareholder during a tax year, the transferee's share of the earnings is reported from the day after the transfer date through the end of the tax year. D) All of the above are false.
D) All of the above are false.
Identify which of the following statements is true. A) Perry Corporation, an S corporation, receives $10,000 of dividends from a 25%-owned domestic corporation. Perry is allowed an 80% dividends-received deduction with respect to the distribution. B) An NOL is incurred by a C corporation in the current tax year. The C corporation makes an S election for the following tax year. The entire C corporation NOL carryover can be passed through to the S corporation's shareholders at the end of the following tax year. C) Tax-exempt interest earned by an S corporation is not reported to its shareholders because it is excluded from the shareholders' gross income. D) All of the above are false.
B) S corporation consent by shareholders is binding on the current tax year and all future tax years
Identify which of the following statements is true. A) Shareholders who acquire stock in an S corporation after the election date and prior to the election's effective date must consent to the election. B) S corporation consent by shareholders is binding on the current tax year and all future tax years. C) Only shareholders who own stock on the date an S election takes effect must consent to the election. D) All of the above are false.
D) All of the above are true.
Identify which of the following statements is true. A) The S corporation rules were enacted to allow small corporations to enjoy the nontax advantages of the corporate form of business without being subject to the tax disadvantage of double taxation. B) A partnership can elect to be taxed as a corporation under the check-the-box regulations. As a corporation, an S election can be made. C) For C corporations that desire to be taxed like a partnership, the S corporation rules provide a practical alternative for an existing C corporation to obtain many of the tax benefits of being taxed as a partnership. D) All of the above are true.
B) Section 444 permits an S corporation to elect to use a fiscal year other than a permitted year.
Identify which of the following statements is true. A) The natural business year for fiscal-year election purposes is any tax year that ends within six months after the peak period of business. B) Section 444 permits an S corporation to elect to use a fiscal year other than a permitted year. C) A new corporation that is 100% owned by Johnny Blake, a cash method of accounting taxpayer, makes an S election for its initial tax year. The S corporation must also elect to use the cash method of accounting as its overall accounting method. D) All of the above are false.
B) The loss pass-throughs from an S corporation may produce a net operating loss for the shareholder.
Identify which of the following statements is true. A) The overall S corporation loss limitation equals the shareholder's adjusted basis for his/her S corporation stock plus his/her ratable share of all S corporation liabilities. B) The loss pass-throughs from an S corporation may produce a net operating loss for the shareholder. C) An S corporation shareholder can increase the adjusted basis of his/her stock by any indebtedness owed the shareholder by the S corporation. D) All of the above are false.
A) may permit the corporation to report as an S corporation even for the period that includes the termination date.
If an S corporation inadvertently terminates its election, the IRS A) may permit the corporation to report as an S corporation even for the period that includes the termination date. B) will not permit the corporation to restore its S election until the completion of a five-year waiting period. C) will permit restoration of the S election only if the event causing the termination was not within the control of the corporation. D) will permit restoration of the S election if a majority of the shareholders consent to the reinstatement.
A) collection of accounts receivable in the current year that resulted from services performed last year
King Corporation, a cash method taxpayer that uses the calendar year as its tax year, was incorporated on June 1, 1984. The corporation made its initial S election on December 1 of last year, effective for the current tax year. Earnings and profits of $60,000 have been retained from C corporation tax years. Which one of the following events results in the recognition of a built-in gain? A) collection of accounts receivable in the current year that resulted from services performed last year B) collection of interest income earned in the current year on bonds purchased on January 1 of last year C) collection of dividends declared on April 5 of the current year on stock purchased on February 14 of the current year D) None of the above are built-in gains.
D) likely treat the termination as inadvertent and will probably approve a continued S election if the corporation distributes the Subchapter C E&P.
Krause Corporation makes an S election, believing that it has no current or accumulated E&P. However, after an IRS audit, Krause is found to have failed the passive investment income test for three consecutive years and also to have a Subchapter C E&P balance from its three pre-election tax years. The IRS will A) automatically terminate the election and Krause cannot reelect for a 5-year time period. B) retroactively revoke the election to the first day on which it was effective and Krause will not be able to reelect. C) treat the error as such and allow the election to continue unbroken. D) likely treat the termination as inadvertent and will probably approve a continued S election if the corporation distributes the Subchapter C E&P.
D) no limit
Shanghai Corporation was organized and elected S status in the current year. How much passive investment income can Shanghai earn and retain its S status? A) none B) 80% of gross receipts C) 50% of gross receipts D) no limit
A) charitable remainder unitrusts.
Trusts that can own S corporation stock include all of the following except A) charitable remainder unitrusts. B) QSSTs. C) grantor trusts. D) testamentary trusts.
C) The Sec. 444 payments are refundable if the S election is terminated.
When a Sec. 444 fiscal-year election is made, the S corporation makes required payments to the IRS in order to continue to use the fiscal year as its tax year. Which of the following statements about the tax year is correct? A) The Sec. 444 payment is deductible by the S corporation as an income tax. B) The Sec. 444 payment is allocated ratably to each shareholder and claimed as a tax payment on their own tax return(s). C) The Sec. 444 payments are refundable if the S election is terminated. D) The Sec. 444 payments must be made quarterly on the same dates that the S corporation's estimated tax payments are otherwise due.
D) failing to file a timely tax return
Which of the following conditions will not cause an S election to be terminated? A) exceeding the 100-shareholder limit B) creating a second class of stock having a dividend preference C) selecting an improper tax year D) failing to file a timely tax return
D) None of these taxes are imposed on an S corporation.
Which of the following corporate tax levies are imposed on an S corporation? A) corporate income tax B) corporate alternative minimum tax C) accumulated earnings tax D) None of these taxes are imposed on an S corporation.
C) Section 1245 income
Which of the following items is not separately stated for an S corporation? A) short-term capital gain B) dividend income C) Section 1245 income D) charitable contribution
A) A C corporation can own stock of an S corporation.
Which of the following statements about stock ownership is not correct? A) A C corporation can own stock of an S corporation. B) An S corporation can own stock of a C corporation. C) A tax-exempt charity can own stock of an S corporation. D) An S corporation can own stock of a Qualified Subchapter S Subsidiary.
C) both A and B
Which of the following tax levies imposed on an S corporation are required to be paid by using estimated tax payments? A) built-in gains tax B) excess net passive income tax C) both A and B D) none of the above
D) Partnership becomes a shareholder.
Which of the following would terminate a Subchapter S election? A) Estate becomes a shareholder. B) Grantor trust becomes a shareholder. C) Voting trust becomes a shareholder. D) Partnership becomes a shareholder.
D) a partnership where all of the partners are U.S. citizens
Which one of the following individuals or entities is ineligible to be an S corporation shareholder? A) an estate B) resident alien of the United States C) a voting trust where all of the beneficiaries are U.S. citizens D) a partnership where all of the partners are U.S. citizens
B) The corporation must not have any foreign-sourced income.
Which one of the following is not one of the corporation-related requirements for S corporation status? A) The corporation must be a domestic corporation. B) The corporation must not have any foreign-sourced income. C) The corporation must not be an "ineligible" corporation. D) The corporation must have only one class of stock.
D) All of the above apply.
Which one of the following special loss limitations applies to an S corporation? A) at-risk rules B) passive activity limitation rules C) hobby loss rules D) All of the above apply.