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Exam 22: S Corporations

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Question 41

Multiple Choice

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Which statement is incorrect with respect to the number-of-shareholders test in filing an S election?

A) Husband Jaime and wife Maria count as one shareholder.
B) Grandmother Adela and granddaughter Maria count as one shareholder.
C) Husband Jaime and the estate of wife Maria count as one shareholder.
D) Husband Jaime and ex-wife Isabel count as one shareholder.
E) All of these statements are correct.

F) A) and B)
G) A) and C)

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Question 42

Multiple Choice

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Which item does not appear on Schedule K of Form 1120S?

A) Intangible drilling costs.
B) Foreign loss.
C) Utilities expense.
D) Recovery of a tax benefit.
E) All of these items appear on Schedule K.

F) B) and D)
G) A) and C)

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Question 43

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Compensation for services rendered to an S corporation generates a corporate-level FICA tax liability.

An S corporation's LIFO recapture amount equals the excess of the inventory's value under ____________________ over the ____________________ value.

Stock basis first is increased by income items, then by distributions, and finally decreased by ____________________.

Donna and Mark are married and file a joint return reporting taxable income of $350,000. Donna owns a qualified S corporation that is not a specified service business. During the year, she incurs qualified business income of $75,000. Donna's share of wages paid by the business is $20,000. Assuming there is no qualified property factor, calculate her 20% QBI deduction.

A one-person LLC can be a shareholder of an S corporation.

Which of the following, if any, can be eligible shareholders of an S corporation?

In the case of a complete termination of an S corporation interest, a tax year may occur.

Lemon Corporation incurs the following transactions. $\begin{array}{lc}\text { Net income from operations } & \$ 110,000 \\\text { Interest income from saving account } & 5,000 \\\text { Long-term capital gain from sale of securities } & 9,000 \\\text { Short-term capital loss from sale of securities } & 4,000\end{array}$ Lemon maintains a valid S election and does not distribute any dividends to its shareholder, Patty. As a result, which of the following must Patty recognize? Ignore the 20% QBI deduction.

Which statement is incorrect?

Depreciation recapture income is a (separately, nonseparately) computed amount.

A cash basis calendar year C corporation reports $100,000 of accounts receivable on the date of its conversion to S status on February 14. By the end of the year, $60,000 of these receivables have been collected. Calculate any built- in gains tax, assuming that there is sufficient taxable income.

The final individual tax return of 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.

Pepper, Inc., an S corporation in Norfolk, VA, has revenues of $400,000, taxable interest of $380,000, operating expe of $250,000, and deductions attributable to the interest income of $140,000. Calculate any passive investment income penalty tax payable by this corporation.

The termination of an S election occurs on the day after a corporation ceases to be a qualifying S corporation.

Tax-exempt income at the S corporation level flows through as taxable income to the shareholder.

Pass-through S corporation losses can reduce the basis in a shareholder's loan to the entity, but distributions do not reduce loan basis.

Discuss two ways that an S election may be terminated.

On January 2, 2019, Tim loans his S corporation $10,000. By the end of 2019, Tim's stock basis is zero, and the basis in his note has been reduced to $8,000. During 2020, the company's operating income is $10,000. The company makes 2020 distributions of $8,000 to Tim. He reports a(n) :