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Exam 15: S Corporations

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Question 61

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Which statement is incorrect?

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) B) and D)
F) None of the above

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Question 62

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S corporation status allows shareholders to realize tax benefits from corporate losses immediately (assuming sufficient stock basis).

A) True
B) False

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Question 63

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An S election made before becoming a corporation is valid only beginning with the first 12-month tax year.

If an S corporation's beginning balance in OAA is zero, and the following transactions occur, what is the ending OAA balance? $\begin{array}{lr}\text { Depreciation recapture income } & \$ 21,000 \\\text { Payroll tax penalty } & 4,200 \\\text { Tax-exempt interest income } & 5,300 \\\text { Nontaxable life insurance proceeds } & 5,100 \\\text { Life insurance premiums pad (nondeductible) } & 2,800\end{array}$ ?

If a resident alien shareholder moves outside the U.S., the S election is terminated.

What method is used to allocate S corporation income or losses (unless an election to the contrary is made) ?

Any distribution made by an S corporation during a tax year is taken into account before accounting for the year's losses.

Which statement is incorrect with respect to filing an S election?

An S shareholder's stock basis does not include a ratable share of S corporation liabilities.

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

Identify a disadvantage of being an S corporation.

​Lent Corporation converts to S corporation status for this year.Lent had been using the LIFO inventory method and held a LIFO inventory value of $510,000 (FIFO value of $650,000) .How much tax must be added to the C corporation tax liability for the year before the S election, assuming that Lent is subject to a 35% tax rate.

An item that appears in the "Other Adjustments Account" affects stock basis, but not AAA, such as tax-exempt interest.

An S shareholder who dies during the S corporation tax year must report his or her share of the pro rata income (loss) items up to the date of death, on the final individual tax return.

The § 1202 exclusion of _________________ on the disposition of small business stock (is/is not) _________________ available for S stock.

Kinney, Inc., an electing S corporation, holds $5,000 of AEP and $9,000 in AAA at the beginning of the calendar tax year.Kinney has two shareholders, Eric and Maria, each of whom owns 500 shares of Kinney's stock.Kinney's taxable income is $6,000 for the year.Kinney distributes $6,000 to each shareholder on February 1, and it distributes another $3,000 to each shareholder on September 1.How is Eric taxed on the distribution?

The corporate-level tax on recognized built-in gains applies when an S corporation disposes of an asset in a taxable disposition within five years after the date on which the S election took effect.

​Which type of distribution from an S corporation is taxed at ordinary income rates?

Tax-exempt income at the S corporation level flows through as taxable to the shareholder.

An S corporation's separately stated items generally are identical to those separately stated by _________________________.