R3 - S Corporations

Question 1

S Corporations may elect to be treated in a manner similar to what?

Answer 1

Partnerships

Question 2

In effect, all the earnings or losses of the S corporation are passed through to whom?

Answer 2

the shareholders

Question 3

Can you have different voting rights with common stock?

Answer 3

YES

Question 4

Lane Inc., an S corporation, pays single coverage health insurance premiums of $4,800 per year and family coverage premiums of $7,200 per year. Mill is a 10% shareholder-employee in Lane. On Mill’s behalf, Lane pays Mill’s family coverage under the health insurance plan. What amount of insurance premiums is includible in Mill’s gross income?

Answer 4

$7,200

Question 5

Each shareholder gets a K-1. Where do the individuals then report that information?

Answer 5

1040 Schedule E

Question 6

True or false.

Eligible shareholders must be a corporation or partnership.

Answer 6

False

EXPLANATION: Eligible shareholders must be an Individual, estate, or certain types of trust. Neither corporations nor partnerships are eligible S/Hs.

Question 7

If an S Corporation election is made by March 15, when is it effective?

Answer 7

Retroactive to beginning of year

Question 8

What is the required S corporation tax year?

Answer 8

Dec. 31 is required year end

Question 9

What form does the S corporation file?

Answer 9

1120S

Question 10

What are three principal taxes imposed on S corporations?

Answer 10

1) LIFO Recapture Tax
2) Built-in Gains Tax
3) Tax on passive investment income

Question 11

Are fringe benefits deductible for shareholder employees owning 2 percent of less of the S corporation?

Answer 11

YES

Question 12

Are fringe benefits deductible for non-shareholder employees?

Answer 12

YES

Question 13

What is the AAA (accumulated adjustments account) balance at the inception of the S corporation?

Answer 13

Zero

Question 14

What is the AAA (accumulated adjustments account) increased by?

Answer 14

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

Question 15

Is the AAA (accumulated adjustments account) decreased by nondeductible expenses that relate to income other than tax-exempt income?

Answer 15

YES

Question 16

Once an S corporation election is terminated or revoked, a new election cannot be made for how many years unless the IRS consents to an earlier election?

Answer 16

5 years

Question 17

What is the taxability of distributions to shareholders in S corporations with no C corporation earnings and profits to the extent of basis in stock?

Answer 17

Tax-free; treated as return of capital

Question 18

What is the taxability of distributions to shareholders in S corporations with no C corporation earnings and profits to the extent of any distributions in excess of the shareholder’s basis?

Answer 18

Taxable; treated as capital gain

Question 19

True or false.

Both tax-exempt and taxable interest income increase a shareholder’s basis in S corporation stock.

Answer 19

True

Question 20

Is long term capital loss included in the calculation of ordinary income?

Answer 20

NO

Question 21

Are charitable contributions included in the calculation of ordinary income?

Answer 21

YES

Question 22

Is gain or loss from the sale of collectibles separately stated on Form 1120S?

Answer 22

YES

Question 23

Is unearned revenue separately stated on Form 1120S?

Answer 23

NO

Question 24

For which type of entity is the owner’s basis increased by the owner’s share of profits and decreased by the owner’s share of losses but is NOT affected by the entity’s bank loan increases or decreases?

Answer 24

S corporation

Question 25

True or false.

Interest and dividends increases the accumulated adjustments account of an S corporation.

Answer 25

True