Taxation Of Business Entities 11th Edition By Brian Spilker – Test Bank

Chapter 11 S Corporations

1) Corporations taxed as S corporations offer the same legal protection to owners as corporations taxed as C corporations.

Answer: TRUE
Difficulty: 1 Easy
Topic: S Corporation Elections
Learning Objective: 11-01 Describe the requirements and process to elect S corporation status.
Bloom’s: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking

2) The S corporation rules are less complex for S corporations that have earnings and profits from prior C corporation years than for S corporations that do not have earnings and profits from prior C corporation years.

Answer: FALSE
Difficulty: 1 Easy
Topic: S Corporation Elections
Learning Objective: 11-01 Describe the requirements and process to elect S corporation status.
Bloom’s: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking

3) The same exact requirements for forming and contributing property govern S corporations and partnerships.

Answer: FALSE
Explanation: The same rules for forming and contributing property govern S and C corporations.
Difficulty: 2 Medium
Topic: S Corporation Elections
Learning Objective: 11-01 Describe the requirements and process to elect S corporation status.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: BB Critical Thinking

4) S corporations may have no more than 50 shareholders, but members of the same family only count as one shareholder.

Answer: FALSE
Explanation: S corporations may have no more than 100 shareholders; family members and their estates count as one.
Difficulty: 2 Medium
Topic: S Corporation Elections
Learning Objective: 11-01 Describe the requirements and process to elect S corporation status.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: BB Critical Thinking

5) Differences in voting powers are permissible across shares of S corporation stock as long as the shares have identical distribution and liquidation rights.

Answer: TRUE
Difficulty: 2 Medium
Topic: S Corporation Elections
Learning Objective: 11-01 Describe the requirements and process to elect S corporation status.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: BB Critical Thinking

6) Publicly traded corporations cannot be treated as S corporations.

Answer: TRUE
Difficulty: 2 Medium
Topic: S Corporation Elections
Learning Objective: 11-01 Describe the requirements and process to elect S corporation status.
Bloom’s: Analyze
AACSB: Reflective Thinking
AICPA: BB Critical Thinking

7) To make an S election effective as of the beginning of the current year, an S corporation must file IRS Form 2553 within three and a half months after the beginning of the year.

Answer: FALSE
Difficulty: 1 Easy
Topic: S Corporation Elections
Learning Objective: 11-01 Describe the requirements and process to elect S corporation status.
Bloom’s: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking

8) Bobby T (95 percent owner) would like to elect S corporation status for DJ, Inc., but Dallas (5 percent owner) does not want to elect S corporation status. Bobby T cannot elect S status for DJ, Inc., without Dallas’s consent.

Answer: TRUE
Explanation: All shareholders on the date of the election must consent to the election.
Difficulty: 1 Easy
Topic: S Corporation Elections
Learning Objective: 11-01 Describe the requirements and process to elect S corporation status.
Bloom’s: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking

9) An S corporation election may be voluntarily or involuntarily terminated.

Answer: TRUE
Difficulty: 1 Easy
Topic: S Corporation Terminations
Learning Objective: 11-02 Explain the events that terminate the S corporation election.
Bloom’s: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking

10) An S corporation can make a voluntary revocation of an S election if shareholders holding more than 25 percent of the S corporation stock (including nonvoting shares) agree.

Answer: FALSE
Explanation: The shareholders must hold more than 50 percent of the stock to make a voluntary revocation.
Difficulty: 1 Easy
Topic: S Corporation Terminations
Learning Objective: 11-02 Explain the events that terminate the S corporation election.
Bloom’s: Remember
AACSB: Reflective Thinking
AICPA: BB Critical Thinking