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Exam 15: S Corporations

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Question 1

True/False

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An estate may be a shareholder of an S corporation.

A) True
B) False

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Question 2

Multiple Choice

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

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) C) and E)
G) D) and E)

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E

Question 3

Essay

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Discuss the two methods of allocating tax-related items to S corporation shareholders.

Liabilities affect the owner's basis differently in an S corporation than they do in a partnership.

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

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

Which could constitute a second class of stock?

Post-termination distributions by a former S corporation that are charged against ____________________ do not get tax-free treatment.

Distributions of appreciated property by an S corporation are not taxable to the entity.

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

An S shareholder's basis is decreased by distributions treated as being paid from AAA.

Realized gain is recognized by an S corporation on its distribution of ____________________ property.

An S corporation with substantial AEP records operating revenues of $410,000,taxable interest income of $390,000,operating expenses of $260,000,and deductions attributable to the interest of $150,000.The passive income penalty tax payable,if any,is:

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

Mock Corporation converts to S corporation status in 2015.Mock used the LIFO inventory method in 2014 and had a LIFO inventory of $435,000 (FIFO value of $550,000) on the date of the S election.How much tax must be added to Mock's 2014 corporate tax liability,assuming that Mock is subject to a 35% tax rate.

____________________ husband and wife must consent to an S election if they own their stock jointly.

Tax-exempt income is not separately stated on Schedule K of Form 1120S.

An S corporation is subject to the following tax.

A newly formed S corporation does not receive any tax benefit from an NOL incurred in its first tax year.

Since loss property receives a ____________________ in basis without any loss recognition,S corporation distributions of loss property should be ____________________.