Question 1

Match the term with the proper response. There may be more than one responses for each term.
-AAA

Accepted Answer

A)  Gross receipts from royalties, passive rents, dividends, interest, etc.
B)  Penalty tax to stop an S corporation from avoiding the corporate tax on disposition of appreciated property.
C)  Cumulative total of undistributed non-separately and separately stated items.
D)  Tax-free distribution.
E)  Taxed as dividend income.F) A) and D)
G) B) and E)

Question 2

All tax preference items flow through the S corporation, to be included in the shareholders' AMT calculations.

Accepted Answer

A) True 
 B)False

Question 3

Which, if any, of the following can be eligible shareholders of an S corporation?

Accepted Answer

A)   A partnership.
B)   A nonresident alien.
C)   A voting trust.
D)   The estate of a deceased shareholder.E) All of the above
F) B) and C)

Question 4

Which, if any, of the following items has no effect on the stock basis of an S corporation shareholder?

Accepted Answer

A)   Operating income.
B)   Long-term capital gain.
C)   Cost of goods sold.
D)   Short-term capital loss.
E)   All of the above affect stock basis.F) C) and D)
G) A) and B)

Question 5

The passive investment income of an S corporation includes gains from the sale of securities.

Accepted Answer

A) True 
 B)False

Question 6

Which item is not included in an S corporation's nonseparately computed income?

Accepted Answer

A)   Net sales.
B)   Cost of goods sold.
C)   Dividends received.
D)   Depreciation recapture.E) A) and B)
F) A) and C)

Question 7

An S shareholder's stock basis can be reduced below zero.

Accepted Answer

A) True 
 B)False

Question 8

Most limited liability partnerships can own stock in an S corporation.

Accepted Answer

A) True 
 B)False

Question 9

Which statement is incorrect?

Accepted Answer

A)   S corporations are treated as corporations under state law.
B)   S corporations are treated as partnerships for Federal income tax purposes.
C)   Distributions of appreciated property are taxable to the S corporation.
D)   None of the above statements is incorrect.E) All of the above
F) A) and C)

Question 10

On January 2, 2013, David loans his S corporation $10,000. By the end of 2013 David's stock basis is zero and the basis in his note has been reduced to $8,000. During 2014, the company's operating income is $10,000. The company makes 2014 distributions to David of $11,000. David reports a(n) :

Accepted Answer

A)   $1,000 LTCG.
B)   $3,000 LTCG.
C)   $11,000 LTCG.
D)   Loan basis of $10,000.E) B) and D)
F) None of the above

Question 11

If any entity electing S status is currently a C corporation, NOL carryovers from prior years
be used in an S corporation year.

Accepted Answer

The answer of If any entity electing S status is...

Question 12

Which statement is incorrect with respect to an S shareholder's consent?

Accepted Answer

A)   A consent extension is available only if Form 2553 is filed on a timely basis, reasonable cause is given, and the interests of the government are not jeopardized.
B)   Both husband and wife must consent if one owns the stock as community property.
C)   An S election requires a consent from all of the S corporation's shareholders.
D)   A consent must be in writing.
E)   None of the above statements is incorrect.F) A) and B)
G) A) and E)

Question 13

An S corporation may not amortize its organization expenses.

Accepted Answer

A) True 
 B)False

Question 14

An S election is made on the shareholder's Form 2553.

Accepted Answer

A) True 
 B)False

Question 15

The passive investment income of an S corporation includes net capital gains from the sale of stocks and securities.

Accepted Answer

A) True 
 B)False

Question 16

If an S corporation has C corporation E & P and passive investment income in excess of
____________________ % of its gross receipts for ____________________ consecutive taxable years, the S election is terminated at the beginning of the year.

Accepted Answer

The answer of If an S corporation has C corporation...

Question 17

S corporations are treated as partnerships under state property laws.

Accepted Answer

A) True 
 B)False

Question 18

Form 1120S provides an S shareholder's computation of his or her stock basis.

Accepted Answer

A) True 
 B)False

Question 19

When an S corporation liquidates, which of its tax attributes disappear?

Accepted Answer

A)   AAA.
B)   AEP.
C)   Suspended losses.
D)   All of the above items disappear.E) All of the above
F) None of the above

Question 20

Fred is the sole shareholder of an S corporation in Fort Deposit, Alabama. At a time when his stock basis is
$20,000, the corporation distributes appreciated property worth $100,000 (basis of $20,000) . Fred's taxable gain is:

Accepted Answer

A)   $0.
B)   $10,000.
C)   $80,000.
D)   $100,000.
E)   None of the above.F) A) and E)
G) B) and D)

Exam 22: S Corporations

Which, if any, of the following can be eligible shareholders of an S corporation?

Correct AnswerverifiedShow Answer

Which statement is incorrect?

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Match the term with the proper response. There may be more than one responses for each term. -AAA

Correct AnswerverifiedShow Answer

The passive investment income of an S corporation includes gains from the sale of securities.

Correct AnswerverifiedShow Answer

S corporations are treated as partnerships under state property laws.

Correct AnswerverifiedShow Answer

When an S corporation liquidates, which of its tax attributes disappear?

Correct AnswerverifiedShow Answer

Which statement is incorrect with respect to an S shareholder's consent?

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An S shareholder's stock basis can be reduced below zero.

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Which item is not included in an S corporation's nonseparately computed income?

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If any entity electing S status is currently a C corporation, NOL carryovers from prior years be used in an S corporation year.

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On January 2, 2013, David loans his S corporation $10,000. By the end of 2013 David's stock basis is zero and the basis in his note has been reduced to $8,000. During 2014, the company's operating income is $10,000. The company makes 2014 distributions to David of $11,000. David reports a(n) :

Correct AnswerverifiedShow Answer

Most limited liability partnerships can own stock in an S corporation.

Correct AnswerverifiedShow Answer

All tax preference items flow through the S corporation, to be included in the shareholders' AMT calculations.

Correct AnswerverifiedShow Answer

The passive investment income of an S corporation includes net capital gains from the sale of stocks and securities.

Correct AnswerverifiedShow Answer

Which, if any, of the following items has no effect on the stock basis of an S corporation shareholder?

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An S corporation may not amortize its organization expenses.

Correct AnswerverifiedShow Answer

Form 1120S provides an S shareholder's computation of his or her stock basis.

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If an S corporation has C corporation E & P and passive investment income in excess of ____________________ % of its gross receipts for ____________________ consecutive taxable years, the S election is terminated at the beginning of the year.

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An S election is made on the shareholder's Form 2553.

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Fred is the sole shareholder of an S corporation in Fort Deposit, Alabama. At a time when his stock basis is $20,000, the corporation distributes appreciated property worth $100,000 (basis of $20,000) . Fred's taxable gain is:

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If an S corporation has C corporation E & P and passive investment income in excess of % of its gross receipts for consecutive taxable years, the S election is terminated at the beginning of the year.

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