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Exam 22: S Corporations

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Question 71

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Which statement is incorrect?

A) S corporations are treated as corporations under state law.
B) S corporations are treated as partnerships for Federal income tax purposes.
C) Distributions of appreciated property are taxable to the S corporation.
D) None of the above statements is incorrect.

E) A) and B)
F) B) and C)

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Question 72

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What statement is correct with respect to an S corporation?

A) There is no advantage to elect § 1244 stock.
B) An S corporation can own up to 85% of an insurance company.
C) A resident alien may be a shareholder.
D) A voting trust arrangement is not available.
E) None of the above statements is true.

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

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Question 73

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Which item has no effect on an S corporation's AAA?

An S corporation's separately stated items generally are identical to those separately stated by _________________________.

Kinney,Inc.,an electing S corporation,holds $5,000 of AEP and $9,000 in AAA at the beginning of the calendar tax year.Kinney has two shareholders,Eric and Maria,each of whom owns 500 shares of Kinney's stock.Kinney's taxable income is $6,000 for the year.Kinney distributes $6,000 to each shareholder on February 1,and it distributes another $3,000 to each shareholder on September 1.How is Eric taxed on the distribution?

Some ____________________and ​ taxation rules apply to an S corporation.

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

Discuss two ways that an S election may be terminated.

An S shareholder's stock basis is reduced by flow-through losses before accounting for distributions.

It is not beneficial for an S corporation to issue § 1244 stock.

​Which type of distribution from an S corporation is taxed at ordinary income rates?

Where the S corporation rules are silent,C corporation provisions apply.

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

Pass-through S corporation losses can reduce the basis in the shareholder's loan to the entity,but distributions do not reduce loan basis.

​This year,Sammy Joseph,the sole shareholder of a calendar year S corporation,received a distribution of $17,000.On December 31 of the prior year,his stock basis was $3,000.The corporation earned $12,000 ordinary income during the year.It has no accumulated E&P.Which statement is correct?

Estella,Inc.,a calendar year S corporation,incurred the following items during the tax year. ​ Calculate Estella's nonseparately computed income.

On January 1,Bobby and Alice own equally all of the stock of an electing S corporation called Prairie Dirt Delight.The entity incurs a $60,000 loss for a non-leap year.On the 200th day of the year (not a leap 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?

An S shareholder's stock basis does not include a ratable share of S corporation liabilities.

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

Pepper,Inc.,an S corporation,holds a $1 million balance in accumulated E&P.It reports sales 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?