R3 - S Corporations

Question 1

S-Corp Shareholder Basis Formula

Answer 1

B Initial Basis
A +Income (separately/non-separately stated, even nontaxable)
S - Distributions to shareholders, - Losses or expenses (even nondeductible)
E Ending Basis

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%

The specific percentage of voting and nonvoting shareholders is not considered, just the total.

Question 3

An S corporation can only have ______ class(es) of stock outstanding.

Answer 3

One.

Common and preferred stock would constitute two classes of stock.

Question 4

A distribution or sale of an S corporation’s assets may result in a tax on any “built-in gain” at the corporate-level. An unrealized “built-in gain” results when the following two conditions occur:

Answer 4

A C corporation elects S corporation status; AND

The fair market value of the corporate assets exceeds the adjusted basis of corporate assets on the election date.

Question 5

Appreciated property can be distributed tax-free to an owner of what type of entity?

Answer 5

Limited Liability Corp
An S corp cannot distribute appreciated property to its shareholders without gain.

In general, a partnership can distribute appreciated property tax-free to its partners.

Question 6

The accumulated adjustments account (AAA) is increased by:

Answer 6

Separately stated and non-separately stated income and gains (except tax-exempt income and certain life insurance proceeds)