Question 1

An S corporation does not recognize a loss when distributing assets that are worth less than their basis.

Accepted Answer

A) True 
 B)False

Question 2

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) B) and C) B

Question 3

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

Accepted Answer

A) True 
 B)False

Question 4

The LIFO recapture tax is a variation of the passive investment income penalty tax.

Accepted Answer

A) True 
 B)False

Question 5

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)  The 20% QBI deduction.F) A) and C)
G) C) and D)

Question 6

The exclusion of gain on disposition of small business stock is not available on disposition of S corporation stock.

Accepted Answer

A) True 
 B)False

Question 7

Persons who were S shareholders during any part of the year before the election date, but were not shareholders when the election was made, also must consent to an S election.

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Which transaction affects the Other Adjustments Account on an S corporation's Schedule M-2?

Accepted Answer

A)  Payroll penalty.
B)  Unreasonable compensation.
C)  Life insurance proceeds nontaxable to the recipient S corporation) .
D)  Taxable interest.E) B) and C)
F) All of the above C

Question 10

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

Accepted Answer

A)  A Roth IRA.
B)  Partnership.
C)  A non-U.S.corporation.
D)  A nonqualifying trust.
E)  None of the above can own stock.F) C) and E)
G) B) and D)

Question 11

Claude Bergeron sold 1,000 shares of Ditta, Inc., an S corporation, for $12,000.He had owned the stock for three years and had a stock basis of $111,000 in the shares.Claude is single, and he is the original owner of the § 1244 stock shares.Calculate the appropriate tax treatment.

Accepted Answer

A)  No gain or loss.
B)  $50,000 LTCL; $49,000 ordinary deduction.
C)  $50,000 ordinary deduction; $49,000 LTCL.
D)  $99,000 long-term capital loss.E) None of the above
F) A) and B)

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

During the year, Miles Nutt, the sole shareholder of a calendar year S corporation, received a distribution of $16,000.At the end of last year, his stock basis was $4,000.The corporation earned $11,000 ordinary income during the year.It has no accumulated E & P.Which statement is correct?

Accepted Answer

A)  Nutt recognizes a $1,000 LTCG.
B)  Nutt's stock basis is $2,000.
C)  Nutt's ordinary income is $15,000.
D)  Nutt's tax-free return of capital is $11,000.E) A) and B)
F) B) and D)

Question 14

A one person LLC can be a shareholder of an S corporation.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A)  AAA.
B)  OAA
C)  AEP
D)  None of the above items is taxed as ordinary income.E) All of the above
F) B) and C) C

Question 16

A new S corporation shareholder can revoke the S election unilaterally, if he/she owns how much of the existing S corporation's stock?

Accepted Answer

A)  More than 50%.
B)  50% or more.
C)  The election can be revoked only if all of the shareholders consent.
D)  The election cannot be revoked during the first year of the new shareholder's ownership.E) A) and D)
F) None of the above

Question 17

On January 2, 2018, Tim loans his S corporation $10,000.By the end of 2018, Tim's stock basis is zero, and the basis in his note has been reduced to $8,000.During 2019, the company's operating income is $10,000.The company makes 2019 distributions to Tim of $8,000.Tim reports an) :

Accepted Answer

A)  $2,000 LTCG.
B)  $8,000 LTCG.
C)  Stock basis of $2,000.
D)  Loan basis of $10,000.E) B) and C)
F) A) and D)

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Identify a disadvantage of being an S corporation.

Accepted Answer

A)  Estates can be shareholders.
B)  Losses flow through immediately to the shareholders.
C)  Section 1202 treatment Qualified Small Business Stock)  is not available.
D)  Tax-exempt income flows through as excludible to shareholders.
E)  None of the above is a disadvantage of the S election.F) A) and D)
G) A) and C)

Exam 15: S Corporations

An S corporation does not recognize a loss when distributing assets that are worth less than their basis.

Correct AnswerverifiedShow Answer

Which statement is incorrect?

Correct AnswerverifiedB

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

Correct AnswerverifiedShow Answer

The LIFO recapture tax is a variation of the passive investment income penalty tax.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The exclusion of gain on disposition of small business stock is not available on disposition of S corporation stock.

Correct AnswerverifiedShow Answer

Persons who were S shareholders during any part of the year before the election date, but were not shareholders when the election was made, also must consent to an S election.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which transaction affects the Other Adjustments Account on an S corporation's Schedule M-2?

Correct AnswerverifiedC

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

Correct AnswerverifiedShow Answer

Claude Bergeron sold 1,000 shares of Ditta, Inc., an S corporation, for $12,000.He had owned the stock for three years and had a stock basis of $111,000 in the shares.Claude is single, and he is the original owner of the § 1244 stock shares.Calculate the appropriate tax treatment.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

During the year, Miles Nutt, the sole shareholder of a calendar year S corporation, received a distribution of $16,000.At the end of last year, his stock basis was $4,000.The corporation earned $11,000 ordinary income during the year.It has no accumulated E & P.Which statement is correct?

Correct AnswerverifiedShow Answer

A one person LLC can be a shareholder of an S corporation.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedC

A new S corporation shareholder can revoke the S election unilaterally, if he/she owns how much of the existing S corporation's stock?

Correct AnswerverifiedShow Answer

On January 2, 2018, Tim loans his S corporation $10,000.By the end of 2018, Tim's stock basis is zero, and the basis in his note has been reduced to $8,000.During 2019, the company's operating income is $10,000.The company makes 2019 distributions to Tim of $8,000.Tim reports an) :

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Identify a disadvantage of being an S corporation.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
B

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
C

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
C

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified