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1

Which of the following is prohibited from being an S corporation shareholder?


A. Foreign citizens that are U.S. residents.

B. U.S. citizens.

C. Corporations.

D. 51 unrelated individuals.

E. None of these.

C. Corporations.

2

Which of the following is not considered a family member for purposes of the S corporation shareholder limit?


A. brother.

B. great-grandparent.

C. grandchildren.

D. grandparent.

E. None of these.

E. None of these.

3

Tone Loc and 89 of his biggest fans formed an S corporation, 2hit, Inc., as the original ninety shareholders. Tone then transferred some of his stock to his grandfather, four of Tone's cousins, five of Tone's children, three of Tone's grandchildren, and 2 close friends. For the S corporation shareholder limit rules, how many shareholders does 2hit, Inc. have?


A. 90.

B. 92.

C. 95.

D. 97.

E. None of these.

B. 92.

4

Which of the following is a requirement to be an S corporation?


A. be a domestic or foreign corporation

B. have only one class of stock

C. have fewer than 75 shareholders

D. have at least one corporate shareholder

E. None of these.

B. have only one class of stock

5

Suppose Hassell formed a C corporation, NewCorp. Inc., in 2014 with a calendar tax year and made an S election on April 14, 2014 with the consent of NewCorp. Inc.'s shareholders: Hassell, Richie Cunningham, and Arnold's, Inc. (a C corporation). When is the S election effective?


A. January 1, 2014.

B. April 14, 2014.

C. January 1, 2015.

D. April 14, 2015.

E. Never.

E. Never.

6

J. D. formed Clampett, Inc. as a C corporation (calendar tax year) with J. D., Granny, and Jethro, Inc. (a C corporation) as shareholders. On January 15, 2014, Jethro, Inc. sold all its shares to Jane Hathaway. On February 28, 2014, Clampett, Inc. filed an S corporation election, with J. D., Granny, and Jane all consenting to the election. What is the earliest effective date of the S election?


A. January 1, 2014.

B. January 1, 2015.

C. January 1, 2016.

D. February 28, 2015.

E. Never.

B. January 1, 2015.

7

If Annie and Andy (each a 30% shareholder) file a revocation on March 18, 2014 to terminate their S corporation's S election, what is the effective date of the S corporation termination (assuming they do not specify one)?


A. January 1, 2014.

B. March 16, 2014.

C. January 1, 2015.

D. March 16, 2015.

E. None of these.

C. January 1, 2015.

8

Which of the following would not result in an S election termination?


A. Having 120 unrelated shareholders.

B. Having a corporation as a shareholder.

C. Issuing a second class of stock.

D. Having excess passive investment income for two consecutive years.

E. None of these.

D. Having excess passive investment income for two consecutive years.

9

On March 15, 2014, J. D. sold his Clampett, Inc. (an S corporation) shares to Ellie Mae, Inc. (a C corporation), terminating Clampett, Inc.'s S election on March 15, 2014. Absent permission from the IRS, what is the earliest date Clampett, Inc. may again elect to be taxed as an S corporation?


A. January 1, 2020.

B. January 1, 2019.

C. January 1, 2018.

D. January 1, 2017.

E. January 1, 2015.

B. January 1, 2019.

10

The IRS may consent to an early re-election of S corporation status after a termination under which of the following:


A. The corporation is now owned more than 10 percent by shareholders who were not owners at the time of termination.

B. The corporation is now owned more than 60 percent by shareholders who were owners at the time of termination.

C. The termination was not reasonably within the control of the corporation or shareholders with a substantial interest in the corporation and was not part of a planned termination by the corporation or shareholders.

D. The corporation had only two ineligible shareholders at the termination date.

E. None of these.

C. The termination was not reasonably within the control of the corporation or shareholders with a substantial interest in the corporation and was not part of a planned termination by the corporation or shareholders.

11

Assume Joe Harry sells his 25% interest in Joe's S Corp. Inc. to Tyrone on January 29. Using the daily allocation method, how much income does Joe Harry report if Joe's S Corp. Inc. earned $200,000 from January 1 to January 28 and a total of $1,460,000 from January 1 through December 31 (365 days)?


A. $28,000.

B. $50,000.

C. $112,000.

D. $200,000.

E. None of these.

A. $28,000.

12

Assume Joe Harry sells his 25% interest in Joe's S Corp. Inc. to Tyrone on January 29. Using the specific identification allocation method, how much income does Joe Harry report if Joe's S Corp. Inc. earned $200,000 from January 1 to January 28 and a total of $1,460,000 from January 1 through December 31 (365 days)?


A. $28,000.

B. $50,000.

C. $112,000.

D. $200,000.

E. None of these.

B. $50,000.

13

Which of the following is not a separately stated item for S corporations?


A. Dividends.

B. Interest income.

C. Charitable contributions.

D. Investment interest expense.

E. All of these are separately stated items.

E. All of these are separately stated items.

14

Vanessa contributed $20,000 of cash and land with a fair market value of $100,000 and an adjusted basis of $40,000 to Cook, Inc. (an S corporation) when it was formed. The land was encumbered by a $30,000 mortgage executed two years before. What is Vanessa's tax basis in Cook, Inc. after formation?


A. $20,000.

B. $30,000.

C. $60,000.

D. $80,000.

E. $120,000.

B. $30,000.

15

Which of the following is not an adjustment to an S corporation shareholder's stock basis?


A. Increase for any contributions to the S corporation during the year.

B. Increase for shareholder's share of ordinary business income.

C. Decrease for shareholder's share of nondeductible items.

D. Increase for distributions during the year.

E. None of these.

D. Increase for distributions during the year.

16

Suppose at the beginning of 2014, Jamaal's basis in his S corporation stock was $27,000 and that Jamaal has loaned the S corporation $10,000. During 2014, the S corporation reported an $80,000 ordinary business loss and no separately stated items. How much of the ordinary loss is deductible by Jamaal if he owns 50% of the S corporation?


A. $10,000.

B. $27,000.

C. $37,000.

D. $40,000.

E. None of these.

C. $37,000.

17

Suppose at the beginning of 2014, Jamaal's basis in his S corporation stock was $27,000 and that Jamaal has loaned the S corporation $10,000. During 2014, the S corporation reported an $80,000 ordinary business loss and no separately stated items. After any loss deductions this year, what is Jamaal's stock and debt basis at the end of the year if Jamaal is a 50% shareholder of the S corporation?


A. $27,000 stock basis; 10,000 debt basis.

B. $0 stock basis; $10,000 debt basis.

C. $67,000 stock basis; $10,000 debt basis.

D. -$13,000 stock basis; $10,000 debt basis.

E. None of these.

E. None of these.

18

Suppose at the beginning of 2014, Jamaal's basis in his S corporation stock is $0, he has a $0 debt basis associated with a $10,000 loan he made to the S corporation and a $5,000 suspended loss from the S corporation. In 2014, Jamaal contributed $8,000 to the S corporation, and the S corporation had ordinary income of $4,000. Assume that Jamaal owns 40% of the S corporation. How much net income or loss does Jamaal report this year from the S corporation?


A. $4,000 income.

B. $1,600 income.

C. $1,000 loss.

D. $3,400 loss.

E. None of these.

D. $3,400 loss.

19

Suppose at the beginning of 2014, Jamaal's basis in his S corporation stock is $0, he has a $0 debt basis associated with a $10,000 loan he made to the S corporation and a $5,000 suspended loss from the S corporation. In 2014, Jamaal contributed $8,000 to the S corporation, and the S corporation had ordinary income of $4,000. Assume that Jamaal owns 40% of the S corporation. What is Jamaal's stock and debt basis at the end of 2014?


A. $0 stock basis; $4,600 debt basis.

B. $0 stock basis; $9,600 debt basis.

C. $4,600 stock basis; $0 debt basis.

D. $9,600 stock basis; $0 debt basis.

E. None of these.

A. $0 stock basis; $4,600 debt basis.

20

Which of the following is the correct order in which loss limitation rules are applied?


A. basis rules 1st, at-risk rules 2nd, passive loss rules 3rd.

B. passive loss rules 1st, at-risk rules 2nd, basis rules 3rd.

C. basis rules 1st, passive loss rules 2nd, at-risk rules 3rd.

D. passive loss rules 1st, basis rules 2nd, at-risk rules 3rd.

E. None of these.

A. basis rules 1st, at-risk rules 2nd, passive loss rules 3rd.

21

Suppose Clampett, Inc. terminated its S election on August 28, 2014. At the end of the S corporation's short tax year ending on August 28, J. D.'s stock basis and at-risk amounts were both zero (he has never had debt basis), and he had a suspended loss of $20,000. In 2015, J. D. made additional capital contributions of $5,000 on March 15 and $12,000 on September 20. How much loss may J. D. deduct in 2015?


A. $0.

B. $5,000.

C. $17,000.

D. $20,000.

E. None of these.

B. $5,000.

22

Suppose Clampett, Inc. terminated its S election on August 28, 2014. At the end of the S corporation's short tax year ending on August 28, J. D.'s stock basis and at-risk amounts were both zero (he has never had debt basis), and he had a suspended loss of $20,000. In 2015, J. D. made additional capital contributions of $5,000 on March 15 and $12,000 on September 5. How much loss may J. D. deduct in 2015?


A. $0.

B. $5,000.

C. $17,000.

D. $20,000.

E. None of these.

C. $17,000.

23

Which of the following is not a true statement?


A. For shareholder-employees who own 2 percent or less of the entity, the S corporation gets a tax deduction for qualifying fringe benefits, and the benefits are nontaxable to the employees.

B. For shareholder-employees who own more than 2 percent of the S corporation, the S corporation gets a tax deduction, but the otherwise qualifying fringe benefits are taxable to the more-than-2-percent shareholder-employees.

C. S corporation owners have a tax incentive to pay themselves a low salary.

D. An S corporation shareholder's allocable share of ordinary business income (loss) is not classified as self-employment income for tax purposes.

E. None of these statements is false.

E. None of these statements is false.

24

Which of the following income items from an S corporation is not considered investment income for purposes of the Net Investment Income tax?


A. Passive income.

B. Interest income.

C. Dividends.

D. Short-term capital gains.

E. All of these are considered investment income for the Net Investment Income tax.

E. All of these are considered investment income for the Net Investment Income tax.

25

Suppose at the beginning of 2014, Jamaal's basis in his S corporation stock is $1,000, and he has a $10,000 debt basis associated with a $10,000 loan he made to the S corporation. In 2014, Jamaal's share of S corporation income is $4,000, and he received a $7,000 distribution from the S corporation. How much income does Jamaal report in 2014 from these transactions?


A. $0.

B. $4,000.

C. $6,000.

D. $7,000.

E. None of these.

C. $6,000.

26

Suppose at the beginning of 2014, Jamaal's basis in his S corporation stock is $1,000, and he has a $10,000 debt basis associated with a $10,000 loan he made to the S corporation. In 2014, Jamaal's share of S corporation income is $4,000, and he received a $7,000 distribution from the S corporation. What is Jamaal's stock and debt basis after these transactions?


A. $0 stock basis; $8,000 debt basis.

B. $0 stock basis; $10,000 debt basis.

C. $5,000 stock basis; $10,000 debt basis.

D. $5,000 stock basis; $3,000 debt basis.

E. None of these.

B. $0 stock basis; $10,000 debt basis.

27

Clampett, Inc. (an S corporation) previously operated as a C corporation. Distributions from Clampett, Inc. are deemed to be paid in the following order:


A. shareholder's remaining stock basis, prior C corporation earnings and profit, the AAA account.

B. shareholder's remaining stock basis, the AAA account, prior C corporation earnings and profit.

C. prior C corporation earnings and profit, the AAA account, shareholder's remaining stock basis.

D. the AAA account, prior C corporation earnings and profit, shareholder's remaining stock basis.

E. None of these.

D. the AAA account, prior C corporation earnings and profit, shareholder's remaining stock basis.

28

Clampett, Inc. has been an S corporation since its inception. On July 15, 2015, Clampett, Inc. distributed $50,000 to J. D. His basis in his Clampett, Inc. stock on January 1, 2015, was $30,000. For 2015, J. D. was allocated $10,000 of ordinary income from Clampett, Inc. and no separately stated items. What is the amount of income J. D. recognizes related to Clampett, Inc. in 2015?


A. $60,000.

B. $50,000.

C. $20,000.

D. $10,000.

E. None of these.

C. $20,000.

29

Clampett, Inc. has been an S corporation since its inception. On July 15, 2015, Clampett, Inc. distributed $50,000 to J. D. His basis in his Clampett, Inc. stock on January 1, 2015, was $45,000. For 2015, J. D. was allocated $10,000 of ordinary income from Clampett, Inc. and no separately stated items. What is the amount of income J. D. recognizes related to Clampett, Inc. in 2015?


A. $60,000.

B. $50,000.

C. $20,000.

D. $10,000.

E. None of these.

D. $10,000.

30

Clampett, Inc. has been an S corporation since its inception. On July 15, 2015, Clampett, Inc. distributed $50,000 to J. D. His basis in his Clampett, Inc. stock on January 1, 2015, was $30,000. For 2015, J. D. was allocated $10,000 of ordinary income from Clampett, Inc. and no separately stated items. What is J. D.'s basis in his Clampett, Inc. stock after all transactions in 2015?


A. $40,000.

B. $30,000.

C. $20,000.

D. $10,000.

E. None of these.

E. None of these.