Taxation - Answers to Multiple Choice Questions on S Corporations and Partnerships

Running head: TAXATION
Taxation
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1
TAXATION
Answer 1:
Except option b, i.e. income of $1 million or less all other options are required for S corporation.
Thus, option b is the correct option.
Answer 2:
A domestic company owning 80% of another corporation is eligible to be classified as S
corporation. Thus, option b is the correct option.
Answer 3:
Except an individual who is not a resident of the United States of America, i.e. a foreigner all the
other person mentioned can hold stock in an S corporation. Thus, option (a) is the correct
option.
Answer 4:
An S corporation can only have one class of stock and it is not allowed to issue non-voting
preferred class of stock. Hence, option b is the correct option.
Answer 5:
Contributions of property in exchange for S corporate stock are nontaxable only if the persons
involved in the transaction own at least 80% of the S corporation when the transfer is completed.
Thus, option b is the correct option.

2
TAXATION
Answer 6:
An S corporation shareholder’s "entire" basis in its S corporation investment may be affected by
some or all of the liabilities of the S corporation because the basis is increased by the amount of
debt directly owed by the S corporation to the particular shareholder when there is a net loss
allocated to that shareholder. Thus, option b is correct.
Answer 7:
Reduction in stock basis by $25,000 will be the result as the loss has to be adjusted in her stock.
Thus, option b is the correct answer.
Answer 8:
Personal holding company tax is required to be paid by a C corporation only thus, except
personal holding company tax all other taxes must be paid by an S corporation. Option c is the
correct option.
Answer 9:
The Built in gain tax was enacted to ensure that all gains are recognized by S corporation on
distribution of appreciated property purchased. Thus, option d is the correct option.
Answer 10:
False, an S corporation is not subjected to C corporation rules.
Answer 11: