Chapter 3 Flashcards
What kind of liability do shareholders of S-corps have?
Limited liability because it’s set up formally.
How many times are S-corps taxed?
Once, when the money is earned.
Are distributions from an S-corp taxable?
No because the money is taxed when earned.
How is an S-corp formed?
100% consent by the shareholders.
How is an S-corp terminated?
Greater than 50% vote or a violation of the rules.
How is the allocation of income computed for an S-corp?
On an average daily basis.
What is “at-risk”?
The initial amount contributed plus any amount loaned to the S-corp.
What happens if basis is below zero?
Basis can’t go below zero and the loss is suspended and carried forward.
When would health insurance premiums paid by an S-corp be included in the shareholder’s income?
When the shareholder is more than a 2% shareholder.
What is the tax rate for an S corp that pays tax on built in gains?
The highest corporate income tax rate.
When must an S corp election be made?
Within 2 1/2 months of the beginning of the fiscal period.
Who may be shareholders of an S corp?
Individuals, estates, and certain trusts.
How many classes of stock can an S corp have?
Only one class of stock.
What is the accumulated adjustment account?
Tthe entity’s earnings that have already passed through to shareholders but have not yet been distributed
How is an S-corp automatically terminated?
When passive investment income exceeds 25% of gross receipts for 3 consecutive years and the corporation has undistributed E&P from its earlier status as a C corp.
