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Exam 12: S Corporations

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Question 31

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An S corporation may lose its S tax status:

A) Only at the option of the IRS.
B) If the corporation has a passive loss during the year.
C) If any one of the shareholders dies and the estate owns the stock.
D) If any one of the shareholders transfers some of the stock to a nonqualified trust.
E) None of the above terminates an S election.

F) C) and D)
G) A) and E)

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Question 32

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Post-termination distributions that are charged against OAA get tax-free treatment.

A) True
B) False

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Question 33

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Chris,the sole shareholder of Taylor,Inc.,elects during 2008 to terminate the S election,effective January 1,2009.As of the end of 2008,Taylor,Inc.,has AAA of $120,000 and OAA of $13,000.Chris receives a cash dividend of $130,000 on January 15,2009.If his stock basis is $220,000 before the distribution,calculate Chris' taxable amount and his ending stock basis.

Life insurance proceeds received and insurance premiums paid are traced through ____________________.

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

For a new corporation,a premature S election may not be effective.

Match the term with the proper response. There may be more than one responses for each term. a.Includes gross receipts derived 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 stated items. d.Tax-free distribution. e.Generated under old S corporation rules (pre-1983). f.Items that affect basis but not AAA go here. g.Taxed as a dividend. -PTI

An S corporation's AAA cannot have a negative balance.

AAA is the _________________________ total of undistributed non-separately and separately stated items for S corporation taxable years beginning after 1982.

The pro rata method assigns an equal amount of each of the S corporation items (e.g.,LTCG)to each day of the year.

You are given the following facts about a 50% owner of an S corporation,and you are asked to prepare his ending stock basis.

The debt basis always is adjusted back to the original amount before any increase is made in the stock basis.

Dawn Adams owns 60% of a calendar year S corporation during 2008.Her stock basis on December 31,2007 is $17,000,and her debt basis is $2,000.If the S corporation incurs a $48,000 loss for 2008,what amount may Ms.Adams deduct on her individual tax return?

On distribution of loss property,an S corporation receives a step-down in basis.

The carryover period for the NOLs of a C corporation continues to run during S corporation years.

Explain the OAA concept.

An S election made before becoming a corporation is valid the next 12-month tax year.

Which of the following items are increases on Schedule M-3 on the Form 1120S,for an S corporation with $230,000 in ordinary income?

Any distribution of cash or property by a corporation with respect to the stock during a post-termination transition period of approximately one year is applied against and reduces the adjusted basis of the stock.

An S shareholder's basis includes a ratable share of any S corporation liabilities.