Which of the following is not eligible to be a shareholder of an S corporation?

Which of the following is not eligible to be a shareholder of an S corporation?

A. A domestic partnership.

B. Individuals who are not nonresident aliens.

C.Estates.

D.Exempt organizations described in Sec. 401(a) or 501(c)(3).


Answer: A. A domestic partnership

Which of the following characteristics can disqualify a corporation from S corporation status?

Which of the following characteristics can disqualify a corporation from S corporation status?

A. Corporation Z has as one of its shareholders a trust that is treated as entirely owned by an individual who is a U.S. citizen.

B. Corporation M has 101 shareholders, including a husband and wife.

C. Corporation B has voting and nonvoting stock.

D. Corporation T has as its shareholders an individual, an estate, and a partnership.


Answer: D. Corporation T has as its shareholders an individual, an estate, and a partnership.

All of the following entities would qualify as shareholders of an S corporation except

All of the following entities would qualify as shareholders of an S corporation except

A. A resident of the United States.

B. An estate of an individual in bankruptcy.

C. A trust owned by an individual who is a United States citizen.

D. A partnership.


Answer: D. A partnership.

Which one of the following is not a requirement to make an S corporation election?

Which one of the following is not a requirement to make an S corporation election?

A. The corporation must have no trusts as shareholders.

B. Shareholder consent must be unanimous.

C. Only one class of stock can be outstanding.

D. The entity must be a domestic entity that elects corporation treatment under the check-the-box regulations.


Answer: A. The corporation must have no trusts as shareholders.

All of the following entities are allowed to elect S status except

All of the following entities are allowed to elect S status except

A. Domestic international sales corporation (DISC).

B. Domestic building and loan association.

C. Mutual savings bank.

D. A cooperative bank without capital stock organized and operated for mutual purposes and without profit.


Answer: A. Domestic international sales corporation (DISC).

Which of the following entities is ineligible to be an S corporation shareholder?

Which of the following entities is ineligible to be an S corporation shareholder?

A. Charitable remainder annuity trust.

B. Employee stock option plan (ESOP).

C. Electing small business trust.

D. Qualified retirement plan trust.


Answer: A. Charitable remainder annuity trust.

What is the maximum number of shareholders allowable for eligibility as an S corporation in the current year?

What is the maximum number of shareholders allowable for eligibility as an S corporation in the current year?

A. 15

B. 25

C. 75

D. 100


Answer: D. 100

HDF, a calendar-year corporation, began business in Year 1. HDF made a valid S corporation election on December 1, Year 2. Assuming the eligibility requirements for S corporation status continued to be met throughout Year 3, on which of the following dates did HDF's S corporation status become effective?

HDF, a calendar-year corporation, began business in Year 1. HDF made a valid S corporation election on December 1, Year 2. Assuming the eligibility requirements for S corporation status continued to be met throughout Year 3, on which of the following dates did HDF's S corporation status become effective?

A. January 1, Year 2.

B. December 1, Year 2.

C. January 1, Year 3.

D. December 1, Year 3.


Answer: C. January 1, Year 3.

A company terminated its S corporation status for the current tax year. When can the company reelect S status?

A company terminated its S corporation status for the current tax year. When can the company reelect S status?

A. Immediately.

B. Third year from the current tax year.

C. Fifth year from the current tax year.

D. Cannot reelect in future.


Answer: C. Fifth year from the current tax year.

Which of the following statements about qualifying shareholders of an S corporation is correct?

Which of the following statements about qualifying shareholders of an S corporation is correct?

A. A general partnership may be a shareholder.

B. Only individuals may be shareholders.

C. Individuals, estates, and certain trusts may be shareholders.

D. Nonresident aliens may be shareholders.


Answer: C. Individuals, estates, and certain trusts may be shareholders.

If a corporation's status as an S corporation is revoked or terminated after January 1, 2019, how many years is the corporation required to wait before making a new S election in the absence of IRS consent to an earlier election?

If a corporation's status as an S corporation is revoked or terminated after January 1, 2019, how many years is the corporation required to wait before making a new S election in the absence of IRS consent to an earlier election?

A. 1

B .3

C. 5

D. 10


Answer: C. 5

Which one of the following will render a corporation ineligible for S corporation status?

Which one of the following will render a corporation ineligible for S corporation status?

A. One of the shareholders is a decedent's estate.

B. One of the shareholders is a bankruptcy estate.

C. The corporation has both voting and nonvoting common stock issued and outstanding.

D. The corporation has 117 shareholders.


Answer: D. The corporation has 117 shareholders.

All of the following events will cause the termination of an S corporation's S election except

All of the following events will cause the termination of an S corporation's S election except

A. Transaction that results in over 100 shareholders.

B. Donation of stock to a tax-exempt organization under 501(c)(4).

C. Sale of stock to a resident alien.

D. Failing the passive income test for 3 consecutive years.


Answer: C. Sale of stock to a resident alien.

Mary and Paul are plumbers. They went into business together and decided that the corporation structure would be in their best interest. On January 1, 2019, they formed the M & P Corp. They did not file a Form 2553. Mary and Paul filed an 1120S return at the end of the year and paid self-employment tax on their respective shares of the income. All of the following statements are true except

Mary and Paul are plumbers. They went into business together and decided that the corporation structure would be in their best interest. On January 1, 2019, they formed the M & P Corp. They did not file a Form 2553. Mary and Paul filed an 1120S return at the end of the year and paid self-employment tax on their respective shares of the income. All of the following statements are true except

A. They are not permitted to file an 1120S return because they have not made a valid election.

B. The income distributed by a corporation is not subject to self-employment tax.

C. Mary and Paul have until March 15, 2020, to make a valid election for 2019.

D. Both Mary and Paul must sign Form 2553 to make a valid election.


Answer (C) is correct.

All of the following events would cause an S corporation to cease qualifying as an S corporation except

All of the following events would cause an S corporation to cease qualifying as an S corporation except

A. Having more than 100 shareholders.

B. Transferring its stock to a corporation.

C. Transferring its stock to a resident alien.

D. Revoking the election with the consent of shareholders who, at the time the revocation is made, hold 55% of the stock.


Answer: C. Transferring its stock to a resident alien.

Dart Corp., a calendar-year S corporation, had 60,000 shares of voting common stock and 40,000 shares of nonvoting common stock issued and outstanding. On February 23, 2019, Dart filed a revocation statement with the consent of shareholders holding 30,000 shares of its voting common stock and 5,000 shares of its nonvoting common stock. Dart's S corporation election

Dart Corp., a calendar-year S corporation, had 60,000 shares of voting common stock and 40,000 shares of nonvoting common stock issued and outstanding. On February 23, 2019, Dart filed a revocation statement with the consent of shareholders holding 30,000 shares of its voting common stock and 5,000 shares of its nonvoting common stock. Dart's S corporation election

A. Did not terminate.

B. Terminated as of January 1, 2019.

C. Terminated on February 24, 2019.

D. Terminated as of January 1, 2020.


Answer: A. Did not terminate.

On December 31, 2019, LS Corporation revoked its S election. LS Corporation had been an S corporation since its inception in 2017. When may LS Corporation reelect S corporation status without IRS consent?

On December 31, 2019, LS Corporation revoked its S election. LS Corporation had been an S corporation since its inception in 2017. When may LS Corporation reelect S corporation status without IRS consent?

Reelection Date
A. January 1, 2023

B.January 1, 2024

C. January 1, 2025

D. December 31, 2024


Answer: C. January 1, 2025

Village Corp., a calendar-year corporation, began business in 2015. Village made a valid S corporation election on December 5, 2018, with the unanimous consent of its shareholders. The eligibility requirements for S status continued to be met throughout 2019. On what date did Village's S status become effective?

Village Corp., a calendar-year corporation, began business in 2015. Village made a valid S corporation election on December 5, 2018, with the unanimous consent of its shareholders. The eligibility requirements for S status continued to be met throughout 2019. On what date did Village's S status become effective?

A. January 1, 2018.

B. January 1, 2019.

C. December 5, 2018.

D. December 5, 2019.


Answer: B. January 1, 2019.

The S corporation status would terminate at the beginning of 2020 for which of the following?

The S corporation status would terminate at the beginning of 2020 for which of the following?

A. Incorporated in 1997. First year of S status was 2015. Passive investment income equaled 29% of gross receipts in 2017, 27% in 2018, and 25% in 2019. Subchapter C earnings and profits were $10,000 at the end of each year.

B. Incorporated in 1997. First year of S status was 2015. Earnings and profits from C corporation tax years of $10,000. In 2017, passive investment income equaled 35% of gross receipts. The corporation had no passive investment income in prior or later years.

C. Incorporated in 1999. First year of S status was 2016. Passive investment income equaled 27% of gross receipts in 2017, 26% in 2018, and 44% in 2019. Subchapter C earnings and profits were $10,000 at the end of each year.

D. Incorporated in 1999. First year of S status was 2014. Passive investment income equaled 19% of gross receipts in 2017, 34% in 2018, and 35% in 2019.


Answer (C)

The S corporation status can be revoked only if the shareholders who collectively own more than what percentage of the outstanding shares in the S corporation's stock consent to its revocation?

The S corporation status can be revoked only if the shareholders who collectively own more than what percentage of the outstanding shares in the S corporation's stock consent to its revocation?

A. 50%

B. 66 2/3%

C. 75%

D. 80%


Answer: A. 50%