ACCT 553 - Final Exam (Chapter 12)fall 2022/2023 Q&A

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S corporations are treated as partnerships under state property laws. - ANSWER False Liabilities affect the owner's basis differently in an S corporation than they do in a partnership. - ANSWER Tru ... e Distributions of appreciated property by an S corporation are not taxable to the entity. - ANSWER False An S corporation cannot incur a tax liability at the corporation level. - ANSWER False Where the S corporation rules are silent, C corporation provisions apply. - ANSWER True A newly formed S corporation does not receive any tax benefit from an NOL incurred in its first tax year. - ANSWER False S corporation status allows shareholders to realize tax benefits from corporate losses immediately (assuming sufficient stock basis). - ANSWER True NOL carryovers from C years can be used in an S corporation year against ordinary income. - ANSWER False Tax-exempt income at the S corporation level flows through as taxable to the shareholder. - ANSWER False An estate may be a shareholder of an S corporation. - ANSWER True Most limited liability partnerships can own stock in an S corporation. - ANSWER False Most IRAs cannot own stock in an S corporation. - ANSWER True An S corporation cannot be a shareholder in another corporation. - ANSWER False If a resident alien shareholder moves outside the U.S., the S election is terminated. - ANSWER True An S election is made on the shareholder's Form 2553. - ANSWER True An S election made before becoming a corporation is valid only beginning with the first 12-month tax year. - ANSWER False For a new corporation, a premature S election may not be effective. - ANSWER True Only 51% of the shareholders must consent to an S election. - ANSWER False Persons who were S shareholders during any part of the year before the election date, but were not shareholders when the election was made, also must consent to an S election. - ANSWER True The termination of an S election occurs on the day after a corporation ceases to be a qualifying S corporation. - ANSWER False The passive investment income of an S corporation includes gains from the sale of securities. - ANSWER True An S corporation may not amortize its organization expenses. - ANSWER False Tax-exempt income at the corporate level flows through as exempt to S shareholders. - ANSWER True The Section 179 expense deduction is a Schedule K item on the Form 1120S. - ANSWER True Depreciation recapture income is a Schedule K item on the Form 1120S. - ANSWER False A per-day, per-share allocation of flow-through S corporation items must be used, unless the shareholder disposes of the entire interest in the entity. - ANSWER True Any distribution of cash or property by a corporation that does not exceed the balance of AAA with respect to S stock during a post-termination transition period of approximately one year is applied against and reduces the basis of the S stock. - ANSWER False All tax preference items flow through the S corporation, to be included in the shareholders' AMT calculations. - ANSWER True An S shareholder who dies during the S corporation tax year must report his or her share of the pro rata income (loss) items up to the date of death, on the final individual tax return - ANSWER True A capital loss allocated to a shareholder always reduces the Other Adjustments Account. - ANSWER False Tax-exempt income is not separately stated on Schedule K of Form 1120S. - ANSWER False A distribution from OAA is taxable. - ANSWER False An item that appears in the "Other Adjustments Account" affects stock basis, but not AAA, such as tax-exempt interest. - ANSWER True An S corporation that has total assets of at least $10 million on Schedule L at the end of the tax year must file a Schedule M-3. - ANSWER True The Schedule M-3 is the same for a C corporation and an S corporation. - ANSWER False A distribution of cash or other property by an S corporation to shareholders that does not exceed the balance of AAA during a one-year period following an S election termination receives special capital gain treatment. - ANSWER False Post-termination distributions that are charged against OAA are received tax-free. - ANSWER False [Show More]

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