S corporations are treated as corporations under state law.

1295. #1
Which statement is false?

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a. S corporations are treated as corporations under state law.
b. The alternative minimum tax applies to an S corporation.
c. Liabilities affect S shareholders differently than partners.
d. S corporations may not allocate income like partnerships.
e. None of the above.

1296. #2
An S corporation may be subject to the following tax:

a. Corporation income tax (§ 11).
b. Passive investment income tax.
c. Alternative minimum tax.
d. None of the above applies to S corporations.

1297. #3
Which statement is false?

a. S corporation status provides many of the benefits of partnership treatment.
b. S corporation shareholders have limited liability.
c. Distributions of appreciated assets are nottaxable in an S corporation.
d. The personal holding company tax does not apply to an S corporation.
e. None of the above.

1298. #4
Which statement is false?

a. Partnership taxation rules do not apply to S corporations.
b. A two-or-more member LLC operates under partnership principles.
c. All income of an S corporation flows through to the S shareholders.
d. S shareholders may use their proportionate shares of NOLs currently.
e. None of the above.

1299. #5
Which statement is true?

a. Charitable contributions are subject to the 10% limitation at the corporate level.
b. The at-risk rules apply to S corporations.
c. The passive loss limitations do not apply to S corporations.
d. S corporations are exempted from state and local taxes.
e. None of the above.

1300. #6
An S corporation must possess the following characteristic(s):

a. No more than 100 shareholders.
b. Corporation organized in the U.S.
c. Only one class of stock.
d. All of the above are required of S corporations.
e. None of the above is required for S corporations.

1301. #7
Which is ineligible to be an S shareholder?

a. Individual.
b. Estate.
c. Partnership.
d. Spouse of a nonresident alien (common law state).
e. None of the above.

1302. #8
Identify a disadvantage of S corporation status.

a. Most trusts can be shareholders.
b. Losses flow through to the shareholders.
c. The ACE adjustment is avoided.
d. Tax-exempt income flows through to the shareholders.
e. None of the above is a disadvantage of the S election.

1303. #9
Which, if any, of the following can be an eligible shareholder of an S corporation?

a. A resident alien.
b. Limited liability company.
c. A foreign corporation.
d. A Roth IRA.
e. None of the above can own S corporation stock.

1304. #10
Which, if any, of the following is not an eligible shareholder of an S corporation?

a. A child, age 9.
b. Spouse of a nonresident alien in a community property state.
c. A voting trust.
d. An estate of a deceased shareholder.
e. All of the above can own S corporation stock.

1305. #11
Which event will not terminate an S election?

a. Receipt of passive income.
b. Share of stock given to a nonresident alien.
c. Shares of stock given to a corporation.
d. A second class of stock issued.
e. All of the above terminate an election.

1306. #12
Which could constitute a second class of stock under the S corporation rules?

a. Treasury stock.
b. Phantom stock.
c. Unexercised stock options.
d. Warrants.
e. None of the above.

1307. #13
Which could constitute a second class of stock under the S corporation rules?

a. Unissued stock.
b. Treasury stock.
c. Stock appreciation rights.
d. Convertible debentures.
e. None of the above.

1308. #14
Which statement is incorrect with respect to filing for an S election?

a. Form 2553 must be filed.
b. All shareholders must consent.
c. The election may be filed in the previous year.
d. An extension of time is available for filing Form 2553.
e. None of the above are incorrect.

1309. #15
Several individuals acquire assets on behalf of Skip Corporation on May 28, 2011, purchased assets on June 3, 2011, and begin doing business on June 11, 2011. They subscribe to shares of stock, file articles of incorporation for Skip, and become shareholders on June 21, 2011. The S election must be filed no later than 2 1/2 months after:

a. May 28, 2011.
b. June 3, 2011.
c. June 11, 2011.
d. June 21, 2011.
e. December 31, 2011.

1310. #16
The maximum number of S shareholders is:

a. 75.
b. 100.
c. 200.
d. Some other fixed amount.
e. Indeterminable.

1311. #17
Which statement is incorrectwith respect to an S shareholder’s consent?

a. An S election requires a consent from all of the S corporation’s shareholders.
b. Both husband and wife must consent if one owns the stock as community property.
c. 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.
d. A consent must be in writing.
e. None of the above statements is incorrect.

1312. #18
Which item does not appear on Schedule K of Form 1120S?

a. Tax-exempt interest income.
b. Depreciation recapture income.
c. Section 179 expense deduction.
d. Section 1231 loss.
e. All of the above appear on Schedule K.

1313. #19
Which item does not appear in an S corporation’s nonseparately computed income?

a. Net sales.
b. Tax-exempt income.
c. Cost of goods sold.
d. Depreciation recapture.
e. All of the above appear.

1314. #20
Which item does not appear on Schedule K of Form 1120S?

a. Intangible drilling costs.
b. Foreign loss.
c. Recovery of a tax benefit.
d. Interest expense.
e. All of the above appear on Schedule K.

1315. #21
What method is automatically used to allocate income or losses (unless an election is made)?

a. Short-year method.
b. Long-year method.
c. Per-day allocation.
d. FIFO method.
e. LIFO method.

1316. #22
Which item has no effect on an S corporation’s AAA?

a. Capital loss.
b. Administrative expenses.
c. Cost of goods sold.
d. Stock purchase by a shareholder.
e. All of the above modify AAA.

1317. #23
Which type of distribution from an S corporation is taxed at the 0/15% Federal income tax rate?

a. AAA.
b. Nonseparately computed income.
c. OAA.
d. AEP.
e. None of the above.

1318. #24
Which transaction affects the Other Adjustments Account on an S corporation’s Schedule M-2?

a. Taxable dividends.
b. Stock dividend (taxable).
c. Depreciation recapture income.
d. Tax-exempt income.
e. None of the above.

1319. #25
Which transaction affects the Other Adjustments Account on an S corporation’s Schedule M-2?

a. Charitable contributions.
b. Unreasonable compensation.
c. Payroll tax penalty assessed.
d. Domestic production activities deduction.
e. None of the above.

1320. #26
Beginning in 2011, the AAA of Ewing, Inc., an S corporation, has a balance of $725,000. During the year, the following items occur.

Ewing’s ending AAA balance is:

a. $1,153,150.
b. $1,134,150.
c. $1,127,650.
d. $1,126,750.

1321. #27
How large must total assets on Schedule L be at the end of the year for an S corporation to be required to file Schedule M-3?

a. $4 million.
b. $5 million.
c. $7.5 million.
d. $10 million.
e. Not required to file.

1322. #28
Distributions of which assets during an S corporation’s post-termination period receive favorable income tax treatment?

a. Cash.
b. Automobile.
c. Real estate.
d. Notes receivable.
e. All of the above.

1323. #29
During 2011, Dana Rippel, the sole shareholder of a calendar year S corporation, received a distribution of $16,000. On December 31, 2010, her 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?

a. Rippel recognizes a $1,000 LTCG.
b. Rippel’s stock basis will be $2,000.
c. Rippel’s ordinary income is $15,000.
d. Rippel’s return of capital is $11,000.
e. None of the above.

1324. #30
On January 1, 2011, Zundel, Inc., an electing S corporation, has $4,000 of AEP and a balance of $10,000 in AAA. Zundel has two shareholders, Erin and Maine, each of whom owns 500 shares of Zundel’s stock. Zundel’s 2011 taxable income is $5,000. Zundel distributes $6,000 to each shareholder on February 1, 2011, and distributes another $3,000 to each shareholder on September 1. How is Erin taxed on this distribution?

a. $500 dividend income.
b. $1,000 dividend income.
c. $1,500 dividend income.
d. $3,000 dividend income.
e. None of the above.

1325. #31
Ryan is the sole shareholder of Sweetwater Apartments, an S corporation in Sour Lake, Texas. At a time when his stock basis is $10,000, the corporation distributes appreciated property worth $100,000 (basis of $10,000). There is no built-in gain. Ryan’s taxable gain is:

a. $0.
b. $10,000.
c. $90,000.
d. $100,000.
e. None of the above.

1326. #32
Which, if any, of the following items has no effect on the stock basis of an S corporation shareholder?

a. Net sales.
b. Long-term capital gain.
c. Cost of goods sold.
d. Short-term capital loss.
e. A mortgage taken by the S corporation.

1327. #33
You are given the following facts about a one-shareholder S corporation, and you are asked to prepare the shareholder’s ending stock basis.

a. $168,660.
b. $170,800.
c. $214,960.
d. $263,960.

1328. #34
Samantha owned 1,000 shares in Evita, Inc., an S corporation, that uses the calendar year. On October 11, 2011, Samantha sells all of her Evita stock. Her basis at the beginning of 2011 was $60,000. Her share of the corporate income for 2011 was $22,000, and she receives a distribution of $37,000 between January 1 and October 11, 2011. Her stock basis at the time of the sale is:

a. $45,000.
b. $60,000.
c. $75,000.
d. $82,000.
e. Some other answer.

1329. #35
You are given the following facts about a 40% owner of an S corporation, and you are asked to prepare her ending stock basis.

a. $77,950.
b. $82,750.
c. $97,100.
d. $103,225.
e. Some other answer.

1330. #36
On January 2, 2010, David loans his S corporation $10,000, and by the end of 2010 David’s stock basis is zero and the basis in his note has been reduced to $8,000. During 2011, the company’s operating income is $10,000. The company also makes distributions to David of $11,000. Which statement is correct?

a. $1,000 LTCG.
b. $3,000 LTCG.
c. $11,000 LTCG.
d. Loan basis is $10,000.
e. None of the above statements is correct.

1331. #37
On January 2, 2010, Tim loans his S corporation $10,000. By the end of 2010, Tim’s stock basis is zero, and the basis in his note has been reduced to $8,000. During 2011, the company’s operating income is $10,000. The company also makes distributions to Tim of $8,000. Which statement is correct?

a. Loan basis is now $10,000.
b. $8,000 LTCG.
c. Stock basis is $2,000.
d. $2,000 LTCG.
e. None of the above statements is correct.

1332. #38
Randall owns 800 shares in Fabrication, Inc., an S corporation in Moss Hill, Texas. In 2011, his basis in his stock is $30,000, before the adjustment for this year’s losses. During 2011, Randall’s share of the corporation’s ordinary loss is $20,000 and his share of its capital loss is $15,000. How much can Randall deduct due to these losses?

a. None.
b. $15,000 ordinary loss; $10,000 capital loss.
c. $17,143 ordinary loss; $12,857 capital loss.
d. $20,000 ordinary loss; $15,000 capital loss.
e. Some other amounts.

1333. #39
During 2011, Oxen Corporation incurs the following transactions.

Oxen maintains a valid S election and does not distribute any assets (cash or property) to its sole shareholder, Megan. As a result, Megan must recognize:

a. Ordinary income of $103,000 and long-term capital gain of $5,000.
b. Ordinary income of $103,000, long-term capital gain of $10,000, and $4,000 short-term capital loss.
c. Ordinary income of $108,000.
d. None of the above.

1334. #40
On January 1, Bobby and Alice own equally all of the stock of an electing S corporation called Prairie Dirt Delight. The dirt company has a $60,000 loss for a non-leap year. On the 200th day of the year, Bobby sells his one-half of the stock to his son, Saul. How much of the $60,000 loss, if any, is allocated to Bobby?

a. $0.
b. $13,562.
c. $16,438.
d. $32,877.
e. None of the above.

1335. #41
A calendar year C corporation has a $41,000 NOL in 2010, but it elects S status for 2011 and generates an NOL of $30,000 in 2011. At all times during 2011, the stock of the corporation was owned by the same 10 shareholders, each of whom owned 10% of the stock. Kris, one of the 10 shareholders, has an S stock basis of $2,300 at the beginning of 2011. How much of the loss, if any, is deductible by Kris in 2011?

a. None.
b. $2,300.
c. $3,000.
d. $7,100.

1336. #42
An S corporation in Lawrence, Kansas has a recognized built-in gain of $110,000 and taxable income of $98,000. The company has an $8,000 NOL carryforward from a C corporation year, and a $7,000 business credit carryforward from a C corporation year. The built-in gains tax liability is:

a. $0.
b. $24,500.
c. $28,700.
d. $31,500.
e. None of the above.

1337. #43
A cash basis calendar year C corporation in Athens, Georgia, has $100,000 of accounts receivable on the date of its conversion to an S corporation on February 14. By the end of the year, $70,000 of these receivables are collected. Calculate any built-in gains tax, assuming that there is sufficient taxable income.

a. $0.
b. $10,500.
c. $24,500.
d. $35,000.
e. Some other amount.

1338. #44
Lott Corporation in Macon, Georgia converts to S corporation status in 2011. Lott used the LIFO inventory method in 2010 and had a LIFO inventory of $420,000 (FIFO value of $550,000). How much tax must be added to the 2010 corporate tax liability, assuming that Lott is subject to a 35% tax rate.

a. $0.
b. $11,375.
c. $45,500.
d. $130,000.
e. None of the above.

1339. #45
Pepper, Inc., an S corporation in Norfolk, Virginia, has revenues of $400,000, taxable interest of $380,000, operating expenses of $250,000, and deductions attributable to the interest income of $140,000. What is Pepper’s passive income penalty tax payable, if any?

a. $0.
b. $40,895.
c. $185,000.
d. $380,000.
e. Some other amount.

1340. #46
Claude Bergeron sold 1,000 shares of Ditta, Inc., an S corporation located in Concord, North Carolina, 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 of any gain or loss.

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.

1341. #47
Yates Corporation elects S status, effective for calendar year 2011. Yates’ only asset has a basis of $50,200 and a fair market value of $110,400 as of January 1, 2011. The asset is sold at the end of 2011 for $130,800. What amount must Mark Farris, a 60% owner and subject to a 15% income tax rate, pay, if any?

a. $5,358.
b. $12,642.
c. $21,070.
d. $35,718.
e. None of the above.

1342. #48
An S corporation with substantial AEP has 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:

a. $0.
b. $40,923.
c. $116,923.
d. $136,500.
e. None of the above.

1343. #49
Which tax provision does notapply to an S corporation?

a. Hobby loss rule.
b. Section 1244 stock.
c. Penalty for failure to file.
d. 10% charitable contribution limitation.
e. Estimated tax payments.

1344. #50
Which of these tax provisions does not apply to an S corporation?

a. Section 1244 stock.
b. “Partial liquidation” stock redemption.
c. Tax-free “A” reorganization.
d. Section 1202 capital gain exclusion.

1345. #51
Grams, Inc., a calendar year S corporation, reports $20,000 DPGR and $15,000 of wages, and the S corporation’s QPAI is $5,000. Janet has a 40% interest in the S corporation. All expenses that reduce DPGR are from wages, and all wages paid relate to DPGR. How much QPAI and wages are allocated to Janet?

a. None.
b. $2,000 and $6,000.
c. $5,000 and $15,000.
d. $5,000 and $20,000.
e. None of the above.