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Exam 12: S Corporations

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Question 41

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Which statement is incorrect with respect to filing 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) All of these are correct.

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Question 42

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An S corporation cannot incur a tax liability at the corporation level.

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Question 43

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You are given the following facts about a 40% owner of an S corporation. Calculate her ending stock basis. $\begin{array} { l r } \text { Owner's beginning stock basis } & \$ 36,800 \\\text { Increase in AAA } & 32,000 \\\text { Increase in OAA } & 6,300 \\\text { Payroll tax penalty } & 2,140 \\\text { Tax-exempt interest income } & 4,800 \\\text { Life insurance premiums paid } & 2,700 \\\text { (nondeductible) } & \\\text { Owner's purchases of additional stock } & 22,000\end{array}$

An S corporation is limited to a theoretical maximum of_______ shareholders.

Oxen Corporation incurs the following transactions. $\begin{array} { l r } \text { Net income from operations } & \$ 100,000 \\\text { Interest income from savings account } & 3,000 \\\text { Long-term capital gain from sale of securities } & 10,000 \\\text { Short-term capital loss from sale of securities } & 4,000\end{array}$ 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 ignore 20% QBI deduction) :

Any distribution of cash or property by a corporation that does not exceed the balance of AAA with respect to S stock during a post-termination transition period of approximately one year is applied against and reduces the basis of the S stock.

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?

Which statement is incorrect with respect to the number-of-shareholders test in filing an S election?

A cash basis calendar year C corporation reports $100,000 of accounts receivable on the date of its conversion to S status on February 14. By the end of the year, $60,000 of these receivables have been collected. Calculate any built- in gains tax, assuming that there is sufficient taxable income.

A service-type S corporation shareholder cannot claim the 20% QBI deduction.

A distribution from the other adjustment account OAA) is not taxable to an S shareholder.

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

An S corporation's LIFO recapture amount equals the excess of the inventory's value under____________________ over the ____________________ value.

Pepper, Inc., an S corporation in Norfolk, VA, has revenues of $400,000, taxable interest of $380,000, operating expe of $250,000, and deductions attributable to the interest income of $140,000. Calculate any passive investment income penalty tax payable by this corporation.

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

Towne, Inc., a calendar year S corporation, holds AAA of $627,050 at the beginning of the tax year. During the year, the following items occur. $\begin{array} { l c } \text { Sales income } & \$ 216,000 \\\text { Loss from real estate operations } & ( 4,000 ) \\\text { Officers' life insurance proceeds } & 100,000 \\\text { Premiums paid for officers' life insurance } & ( 3,600 ) \\\text { Dividend income } & 17,000 \\\text { Interest income } & 3,000 \\\text { Charitable contributions } & ( 22,000 ) \\\S 179 \text { depreciation expense } & ( 2,500 ) \\\text { Administrative expenses } & ( 35,000 ) \\\text { Cash distributions to shareholders } & ( 73,220 )\end{array}$ Calculate Towne's ending AAA balance.

An S corporation's AAA can have a negative balance.

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

The exclusion of__________ on the disposition of small business stock is/is not)___________available for S stock.

You are given the following facts about a 50% owner of an S corporation. Compute her ending stock basis. $\begin{array} { l r } \text { Increase in AAA } & \$ 32,000 \\\text { Increase in OAA } & 6,300 \\\text { Payroll tax penalty } & 2,140 \\\text { Owner's beginning stock basis } & 39,800 \\\text { Tax-exempt interest income } & 4,800 \\\text { Insurance premiums paid (nondeductible) } & 2,700 \\\text { Owner's additional stock purchases } & 22,000 \\\text { Owner's 20\% QBI deduction } & 21,000\end{array}$