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Exam 22: S Corporations

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Question 1

Multiple Choice

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Which equity arrangement would stop a corporation from being an S corporation?

A) Phantom stock.
B) Stock appreciation rights.
C) Warrants.
D) Straight debt.
E) An insurance company structure.

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

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Question 2

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

A) True
B) False

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Question 3

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An S corporation may not have a ____________________ alien shareholder.

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

A capital loss allocated to a shareholder always reduces the other adjustments account.

A two-or-more member LLC operates under partnership tax principles.

An S election is made on Form 2550.

Dawn Adams owns 60% of a calendar year S corporation during 2010.Her stock basis on December 31,2009 is $17,000,and her debt basis is $2,000.If the S corporation incurs a $48,000 loss for 2010,what amount may Ms.Adams deduct on her individual tax return?

Depletion in excess of basis in property causes a(n)____________________ adjustment to an S shareholder's basis.

Randall owns 800 shares in Fabrication,Inc. ,an S corporation in Moss Hill,Texas.In 2010,his basis in his stock is $30,000,before the adjustment for this year's losses.During 2010,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?

An S corporation shareholder's basis includes his or her direct investments plus a ratable share of any corporate liabilities.

The § 1374 tax is a corporate-level tax on any built-in gain recognized in 2010 when an S corporation disposes of an asset in a taxable disposition within 7 tax years after the date on which the S election took effect.

An S corporation reports $10,000 DPGR and $7,500 of wages,and the S corporation's QPAI is $2,500.Shelly has a 50% 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 Shelly?

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 $9,000 business credit carryforward from a C corporation year.The built-in gains tax liability is:

A distribution from previously taxed income is taxable.

Apple,Inc. ,a cash basis S corporation in Orange,Texas,formerly was a C corporation.Apple has the following assets and liabilities on January 1,2010,the date the S election is made. During 2010,Apple collects the accounts receivable and pays the accounts payable.The land is sold for $3 million,and taxable income for the year is $590,000.What is Apple's built-in gains tax?

S corporations are treated much like ____________________ for tax purposes.

Net operating losses incurred before an S election do not flow through to the shareholders once the election is in effect.

Fred is the sole shareholder of an S corporation in Fort Deposit,Alabama.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.Fred's taxable gain is:

Which statement is incorrect?