CCH Federal Taxation Comprehensive Topics 2014 1. To qualify as an S corporation there is no limit to the number of shareholders. a. True*b. False 2. A corporation with more than 50 shareholders will not qualify for the S election. 3. Ace Trucking Co., Inc. is chartered in Michigan. It has 100 shares of common stock and 200 shares of preferred stock outstanding which areheld by three individuals who also live in Michigan. The corporation owns no subsidiaries. This corporation qualifies for the S election. 4. A corporation with two classes of stock cannot qualify under Subchapter S for the election not to be taxed. 5. If a corporation fails to make a timely S election, an extension of time to make the election may be granted. a. True*b. False 6. A calendar year corporation that meets certain requirements and wishes not to be taxed as a corporation for 2013 must make an S election by March 15, 2013.
7. An S corporation cannot be subject to an income tax. 8. An electing S corporation is entitled to the dividends received deduction. 9. A shareholder's stock basis in an S corporation is increased by his or her share of the corporation's separately stated and non-separately computed items of income. *a. Trueb. False 10. If a shareholder of an S corporation has a tax year different from that of the corporation, he or she must report any distributions of current year's taxable income in the year he or she actually receives the distribution. 11. A corporation has been an S corporation for five years and has accumulated earnings and profits. Its S election is terminated in the year following the third consecutive year in which more than 25 percentof the corporation's gross receipts for a tax year are excessive passive income. 12. If an S corporation's passive investment income is more that 25 percent of gross receipts for two consecutive tax years and the corporation has pre-S corporation earnings and profits at the end of each of those years, the corporation's S corporation status will be terminated. 13. For 20X1, the books and records of Clover, Inc., a cash basis S corporation, reflected the following: Salary to $22,000
Dad Clover, President and 50% shareholderSalary to Son Clover, janitor and 50% shareholder60,000Loans to Dad Cloverduring 20X1, no repayments30,000Dad Clover worked 40-hour weeks for the entire year but said that the business could not afford to pay him a salary more than the $22,000. The IRS could reclassify the $30,000 and/or part of the son's salary toDad Clover, and assess income tax withholding as well as employment taxes on those amounts. *a. Trueb. False
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