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ACCT 6353 CHAPTER 12--S CORPORATIONS

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CHAPTER 12--S CORPORATIONS Student: ___________________________________________________________________________ 1. S corporations are treated as partnerships under state property laws. True False 2. Liabilities affect the owner’s basis differently in an S corporation than they do in a partnership. True False 3. An S corporation cannot incur a tax liability at the corporation level. True False 4. Distributions of appreciated property by an S corporation are not taxable to the entity. True False 5. Where the S corporation rules are silent, C corporation provisions apply. True False 6. A newly formed C corporation does not receive any tax benefit from an NOL incurred in its first tax year. True False 7. S corporation status allows shareholders to realize tax benefits from corporate losses immediately (assuming sufficient stock basis). True False 8. NOL carryovers from C years can be used in an S corporation year against ordinary income. True False9. Tax-exempt income at the S corporation level flows through as taxable to the shareholder. True False 10. An estate may be a shareholder of an S corporation. True False 11. Most limited liability partnerships can own stock in an S corporation. True False 12. Most IRAs cannot own stock in an S corporation. True False 13. An S corporation cannot be a shareholder in another corporation. True False 14. If a resident alien shareholder moves outside the U.S., the S election is terminated. True False 15. An S election is made on the shareholder’s Form 2553. True False 16. An S election made before becoming a corporation is valid only beginning with the first 12-month tax year. True False 17. For a new corporation, a premature S election may not be effective. True False 18. Only 51% of the shareholders must consent to an S election. True False19. 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. True False 20. The termination of an S election occurs on the day after a corporation ceases to be a qualifying S corporation. True False 21. The passive investment income of an S corporation includes gains from the sale of securities. True False 22. An S corporation may not amortize its organization expenses. True False 23. Tax-exempt income at the corporate level flows through as exempt to S shareholders. True False 24. The Section 179 expense deduction is a Schedule K item on the Form 1120S. True False 25. Depreciation recapture income is a Schedule K item on the Form 1120S. True False 26. 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. True False 27. 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. True False28. All tax preference items flow through the S corporation, to be included in the shareholders’ AMT calculations. True False 29. 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. True False 30. A capital loss allocated to a shareholder always reduces the Other Adjustments Account. True False 31. Tax-exempt income is not separately stated on Schedule K of Form 1120S. True False 32. A distribution from OAA is taxable. True False

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