Ch21TB - 853 Chapter 21 S Corporations TRUE-FALSE...

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© 2009 CCH. All Rights Reserved. Chapter 21 853 Chapter 21 S Corporations TRUE-FALSE QUESTIONS—CHAPTER 21 To qualify as an S corporation there is no limit to the number of shareholders. 1. A corporation with more than 50 shareholders will not qualify for the S election. 2. Ace Trucking Co., Inc. is chartered in Michigan. It has 100 shares of common stock and 200 shares of preferred stock 3. outstanding which are held by three individuals who also live in Michigan. The corporation owns no subsidiaries. This corporation quali f es for the S election. A corporation with two classes of stock cannot qualify under Subchapter S for the election not to be taxed. 4. If a corporation fails to make a timely S election, an extension of time to make the election may be granted. 5. A calendar year corporation that meets certain requirements and wishes not to be taxed as a corporation for 2009 must 6. make an S election by March 15, 2009. An S corporation cannot be subject to an income tax. 7. An electing S corporation is entitled to the dividends received deduction. 8. A shareholder’s stock basis in an S corporation is increased by his or her share of the corporation’s separately stated 9. and non-separately computed items of income. If a shareholder of an S corporation has a tax year different from that of the corporation, he or she must report any 10. distributions of current year’s taxable income in the year he or she actually receives the distribution. A corporation has been an S corporation for f ve years and has accumulated earnings and pro f ts. Its S election is 11. terminated in the year following the third consecutive year in which more than 25 percent of the corporation’s gross receipts for a tax year are excessive passive income. If an S corporation’s passive investment income is more that 25 percent of gross receipts for two consecutive 12. tax years and the corporation has pre-S corporation earnings and pro f ts at the end of each of those years, the corporation’s S corporation status will be terminated. For 20X1, the books and records of Clover, Inc., a cash basis S corporation, re F ected the following: 13. Salary to Dad Clover, President and 50% shareholder $22,000 Salary to Son Clover, janitor and 50% shareholder 60,000 Loans to Dad Clover during 20X1, no repayments 30,000 Dad 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 to Dad Clover, and assess income tax withholding as well as employment taxes on those amounts. An Electing Small Business Trust is an eligible shareholder for an S corporation. 14. Corporation X began operations on January 1, 2009, and met all of the requirements to qualify as an S corporation.
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Ch21TB - 853 Chapter 21 S Corporations TRUE-FALSE...

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