Deck 14

Question 1

Fringe benefits paid by an S corporation are deductible by the S corporation only for:

Answer 1

Non-shareholder employees and employee-shareholder’s owning 2% or less of the S corporation

Question 2

S corporation status can be revoked if shareholders owning more than ______ of the total number of issued and outstanding shares consent

Answer 2

50%

Question 3

Net business income for S corporation =

Answer 3

Gross receipts + income items (not including dividend income) - expenses

Question 4

Unrealized “built-in” gain for an S corp. results when the following two conditions are met:

Answer 4

1) a C corporation elects S corporation status, and (2) the FMV of assets > adjusted basis

Question 5

Losses for an S corporation are only deductible only to the extent of:

Answer 5

The shareholder’s basis

Question 6

What is the tax rate for an S corporation that pays tax on built-in gains?

Answer 6

The highest corporate income tax rate which is 35%

Question 7

Are stock dividends taxable?

Answer 7

Generally not taxable; unless shareholder has a choice of receiving cash or the property (FMV)

Question 8

Proportional stock redemption is:

Answer 8

dividend income

Question 9

Disproportional stock redemption is:

Answer 9

Capital gain/loss

Question 10

Corporation sells assets and distributes cash to shareholders; equation for corp:

Answer 10

Sales price - basis = taxable gain/loss

Question 11

Corporation distributes assets to shareholders; equation for corp:

Answer 11

FMV - basis = taxable gain/loss

Question 12

Corp sells assets and distributes cash to shareholders; equation for shareholder:

Answer 12

Proceeds - stock basis = taxable gain/loss

Question 13

Corp distributes assets to shareholder; equation for shareholder:

Answer 13

Sales price - stock basis = taxable gain/loss

Question 14

Type A reorganization (Tax free for all reorganizations):

Answer 14

Mergers or consolidations

Question 15

Type B reorganization:

Answer 15

acquisition by one corp. of another corp’s stock, stock for stock

Question 16

Deductible fringe benefits for S corp.

Answer 16

Deductible for non-shareholder employees and those owning 2% or less of the S corp.

Question 17

To qualify as an exempt organization, an applicant must not be:

Answer 17

A private foundation organized and operated exclusively to influence legislation.

Question 18

Unrelated business income is:

Answer 18

1) Derived from an activity that constitutes a trade or business, 2) Is regularly carried on, and 3) Is not substantially related to the organization’s tax-exempt purpose.

Question 19

What exempt organization must file annual information returns?

Answer 19

Private foundations