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Exam 22: S Corporations

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Question 21

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If any entity electing S status is currently a C corporation, NOL carryovers from prior years generally be used in an S corporation year.

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Question 22

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An S corporation must possess which of the following characteristics?

A) Not more than 100 shareholders.
B) Corporation organized in the United States.
C) Only one class of stock.
D) All of these.
E) None of these.

F) D) and E)
G) None of the above

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Question 23

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An S election made before becoming a corporation is valid only beginning with the first 12-month tax year.

Estella, Inc., a calendar year S corporation, incurred the following items during the tax year. $\begin{array} { l r } \text { Municipal bond interest } & \$ 7,000 \\\text { Sales } & 120,000 \\\text { Depreciation recapture income } & 14,000 \\\text { Long-term capital gain } & 20,000 \\\text { Cost of goods sold } & ( 42,000 ) \\\text { Administrative expenses } & ( 15,000 ) \\\text { Depreciation expense } & ( 13,000 ) \\\text { Charitable contributions } & ( 10,000 ) \\20 \% \text { QBI deduction } & 4,370\end{array}$ Calculate Estella's nonseparately computed income.

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

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

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

Which statement is incorrect with respect to filing an S election?

As with partnerships, the income, deductions, and tax credits of an S corporation to the shareholders annually.

On January 2, 2019, David loans his S corporation $10,000. By the end of 2019 David's stock basis is zero and the basis in his note has been reduced to $8,000. During 2020, the company's operating income is $10,000. The company makes 2020 distributions to David of $11,000. David reports a(n) :

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

Which of the following reduces a shareholder's S corporation stock basis?

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

You are a 60% owner of an S corporation. Calculate your ending stock basis based upon these facts. $\begin{array} { l r } \text { Beginning stock basis } & \$ 52,600 \\\text { Purchases of additional stock } & 15,000 \\\text { Insurance premiums paid (nondeductible) } & 3,600 \\\text { Tax-exempt interest income } & 5,230 \\\text { Payroll tax penalty } & 3,770 \\\text { Increase in AAA } & 22,400 \\\text { Increase in OAA } & 5,800\end{array}$

Advise your client how income, expenses, gain, and losses are allocated to shareholders of an S corporation.

Samantha owned 1,000 shares in Evita, Inc., an S corporation, that uses the calendar year. On October 11, Samantha sells all of her Evita stock. Her stock basis at the beginning of the tax year was $60,000. Evita's ordinary income for the year was $22,000 through the date of sale, and Samantha receives a distribution of $35,000 on May 3rd. Her stock basis at the time of the sale is:

The choice of a flow-through entity for a closely held corporation often is between a(n) (a Federal tax entity) and a(n) (a state tax entity).

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

A newly formed S corporation does not receive any tax benefit from a C corporation's NOL incurred in its first election tax year.

You are given the following facts about a solely owned S corporation. What is the shareholder's ending stock basis? $\begin{array}{l}\begin{array} { l r } \text { Increase in AAA } & \$ 31,000 \\\text { Increase in OAA } & 6,300 \\\text { Payroll tax penalty } & 2,140 \\\text { Beginning stock basis } & 39,800 \\\text { Stock purchases } & 22,000 \\\text { Tax-exempt life insurance proceeds } & 4,800 \\\text { Life insurance premiums paid } & 2,700\end{array}\\\text { (nondeductible) }\end{array}$