Question 1

Identify which of the following statements is true.

Accepted Answer

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.E) All of the above
F) A) and B)

Question 2

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?

Accepted Answer

A)   July 15
B)   September 15
C)   October 15
D)   March 15 of the next yearE) C) and D)
F) B) and C)

Question 3

Identify which of the following statements is false.

Accepted Answer

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.E) C) and D)
F) B) and D) B

Question 4

S shareholders are allocated shares of income, gain, loss, deduction, and credit based on their number of shares of stock and period of time for which the stock is held.

Accepted Answer

A) True 
 B)False

Question 5

Power Corporation reports the following results:
 $\begin{array}{ll}
\text { Service income (not passive income) } & \$ 40,000 \
\text { Dividend income } & 30,000 \
\text { Interest income } & 60,000 \
\text { Passive income-related expenses } & 20,000 \
\text { Other expenses } & 50,000
\end{array}$ At the end of the year, Power's Subchapter C E&P is $50,000. What is Power Corporation's excess net passive income and its excess net passive income tax for the year?

Accepted Answer

The excess net passive income ...

Question 6

Identify which of the following statements is false.

Accepted Answer

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.E) A) and B)
F) A) and C)

Question 7

Which one of the following special loss limitations apply to an S corporation?

Accepted Answer

A)   at-risk rules
B)   passive activity limitation rules
C)   hobby loss rules
D)   All of the above apply.E) A) and C)
F) All of the above

Question 8

Identify which of the following statements is true.

Accepted Answer

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.E) A) and B)
F) C) and D)

Question 9

Woods Corporation has operated as a C corporation for the last seven years. The corporation has assets with a $500,000 adjusted basis and a $700,000 FMV. Liabilities are $200,000. Wolf Woods, a calendar-year taxpayer, owns all of the Woods Corporation stock. The corporation has a June 30 year-end and uses the accrual method of accounting. In order to reduce his total combined corporate and personal federal income tax liability, Wolf's CPA has told him to convert the corporation to S corporation status. Wolf would like to complete the conversion on the last day of the corporation's tax year. What tax issues should Wolf and his CPA consider with respect to the S election?

Accepted Answer

The questions listed below are based on ...

Question 10

The Vanity Corporation organized and began operations in January. The corporation's ten equal shareholders elect to have Vanity taxed as an S corporation, and the election and necessary consents are filed in a timely manner. For its first tax year ended December 31, Vanity has ordinary income of $64,000 and short-term capital gains of $16,000. During the year, it distributes $30,000 in cash equally to its ten shareholders. For the year, how much income should each shareholder report and how should it be characterized?

Accepted Answer

Ordinary income, $6,400 (0.10 × $64,000)...

Question 11

Up to six generations of a family are considered as one shareholder for purposes of the 100-shareholder limit.

Accepted Answer

A) True 
 B)False

Question 12

Which one of the following individuals or entities is ineligible to be an S corporation shareholder?

Accepted Answer

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. citizensE) A) and C)
F) B) and D)

Question 13

Identify which of the following statements is true.

Accepted Answer

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.E) A) and B)
F) All of the above

Question 14

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?

Accepted Answer

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.E) A) and D)
F) A) and B)

Question 15

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?

Accepted Answer

A)   ordinary income or loss
B)   tax-exempt bond interest income
C)   long-term capital gains and losses
D)   amortization of organizational expendituresE) C) and D)
F) A) and B)

Question 16

Which of the following corporate tax levies are imposed on an S corporation?

Accepted Answer

A)   corporate income tax
B)   corporate alternative minimum tax
C)   accumulated earnings tax
D)   None of these taxes are imposed on an S corporation.E) None of the above
F) All of the above

Question 17

Identify which of the following statements is false.

Accepted Answer

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.E) None of the above
F) A) and B)

Question 18

The passive income test relating to an S corporation election is applied

Accepted Answer

A)   daily.
B)   monthly.
C)   quarterly.
D)   annually.E) All of the above
F) B) and C) D

Question 19

Boxer Corporation, a C corporation, elects on June 30 of last year to make an S election for the current year. The net unrealized built-in gains at the beginning of the current year are $300,000. The net recognized built-in gains in the current year are $110,000. What is Boxer's built-in gains tax for the current year?

Accepted Answer

$110,000 ×...

Question 20

Cook's Outlet has been an S corporation since its inception six years ago. On January 1 of the current year, the corporation's two equal shareholders, Davis and Dane, had adjusted bases of $150,000 and $175,000, respectively, for their S corporation's stock. The shareholders plan to have the corporation distribute land with a $50,000 adjusted basis and a $200,000 FMV in the current year. Ordinary income is expected to be $180,000 in the current year. What tax issues should Davis and Dane consider with respect to the distribution?

Accepted Answer

• What gain or loss does Cook's Outlet recognize on making the distribution? Does the gain or loss trigger any built-in gains tax liability? Excess net passive income tax liability?
• What is each shareholder's basis for the Cook's Outlet stock immediately preceding the distribution?
• What basis reduction does the distribution cause for each shareholder? Does the basis reduction trigger the recognition of any income by the shareholder (e.g., if the distribution reduces the shareholder's basis to zero)?
• What is each shareholder's basis for the Cook's Outlet stock immediately following the distribution?
• What is each shareholder's basis and holding period for the land received?
Cook's Outlet will recognize a $150,000 ($200,000 - $50,000) gain on the distribution. This gain may be subject to the Sec. 1374 or Sec. 1375 tax, but insufficient facts are provided to make such a determination. This gain and Cook's Outlet's ordinary income from operations will flow through to the shareholders and increase their stock bases. Davis and Dane take $315,000 ($150,000 + $75,000 + $90,000) and $340,000 ($175,000 + $75,000 + $90,000) bases, respectively, assuming no corporate-level taxes are imposed. Each shareholder will reduce his basis by $100,000 (0.50 × $200,000) for the distribution.

Exam 11: S Corporations

Identify which of the following statements is true.

Correct Answer
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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?

Correct Answer
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Identify which of the following statements is false.

Correct Answer
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B

S shareholders are allocated shares of income, gain, loss, deduction, and credit based on their number of shares of stock and period of time for which the stock is held.

Correct Answer
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Correct Answer
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The excess net passive income ...
View Answer

Identify which of the following statements is false.

Correct Answer
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Which one of the following special loss limitations apply to an S corporation?

Correct Answer
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Identify which of the following statements is true.

Correct Answer
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Correct Answer
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The questions listed below are based on ...
View Answer

Correct Answer
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Ordinary income, $6,400 (0.10 × $64,000)...
View Answer

Up to six generations of a family are considered as one shareholder for purposes of the 100-shareholder limit.

Correct Answer
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Which one of the following individuals or entities is ineligible to be an S corporation shareholder?

Correct Answer
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Identify which of the following statements is true.

Correct Answer
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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?

Correct Answer
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Correct Answer
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Which of the following corporate tax levies are imposed on an S corporation?

Correct Answer
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Identify which of the following statements is false.

Correct Answer
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The passive income test relating to an S corporation election is applied

Correct Answer
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D

Correct Answer
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$110,000 ×...
View Answer

Exam 11: S Corporations

Identify which of the following statements is true.

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Identify which of the following statements is false.

Correct AnswerverifiedB

S shareholders are allocated shares of income, gain, loss, deduction, and credit based on their number of shares of stock and period of time for which the stock is held.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe excess net passive income ...View AnswerShow Answer

Identify which of the following statements is false.

Correct AnswerverifiedShow Answer

Which one of the following special loss limitations apply to an S corporation?

Correct AnswerverifiedShow Answer

Identify which of the following statements is true.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe questions listed below are based on ...View AnswerShow Answer

Correct AnswerverifiedOrdinary income, $6,400 (0.10 × $64,000)...View AnswerShow Answer

Up to six generations of a family are considered as one shareholder for purposes of the 100-shareholder limit.

Correct AnswerverifiedShow Answer

Which one of the following individuals or entities is ineligible to be an S corporation shareholder?

Correct AnswerverifiedShow Answer

Identify which of the following statements is true.

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following corporate tax levies are imposed on an S corporation?

Correct AnswerverifiedShow Answer

Identify which of the following statements is false.

Correct AnswerverifiedShow Answer

The passive income test relating to an S corporation election is applied

Correct AnswerverifiedD

Correct Answerverified$110,000 ×...View AnswerShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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B

Correct Answer
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Correct Answer
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The excess net passive income ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The questions listed below are based on ...
View Answer

Correct Answer
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Ordinary income, $6,400 (0.10 × $64,000)...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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D

Correct Answer
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$110,000 ×...
View Answer