Which of the following statement is correct?
a. A shareholder’s basis in S corporation stock can be reduced below zero only by losses from the corporation and not distribution
b. The basis of an S corporation shareholder stock is increased by cash and property distributions from the corporation that are not included in the shareholder income
c. The basis of an S corporation shareholder’s stock is increased by cash and property distributions from the corporation that are not included in the shareholder income
d. Non of the above
Which of the following statement is correct regarding years n S corporation has overall losses and distribution cash to its shareholders?
a. Item of loss are deducted from shareholders bases before distribution
b. Shareholders’ bases are reduced for noncapital, nondeductible, expenses before they are reduced for deductible expenses
c. Any items of income or gain are not taken into account when adjusting shareholders bases
d. All of the above
Which of the following statements is not correct?
a. The accumulated adjustments account is a shareholder level account
b. The accumulated adjustments account is essentially the undistributed earnings and profits of the S corporation while the S election is in effect
c. Increases to the accumulated adjustments account are applied before decreases
d. The accumulated adjustment account can be negative
An S corporation makes distributions to its shareholders. The S corporation does not have any accumulated earnings and profits from operation as a C corporation, The distributions are first allocated to:
a. The AAA account and treated as taxable dividends
b. Shareholders” bases in stock and are treated as a nontaxable return of capital
c. Shareholder’s bases inn stock and treated as a capital gain or loss
d. Shareholder’s bases in debt in debt and treated as a nontaxable repayment of the debt
Which of the following statement is correct?
a. The accumulated adjustments account is essentially the accumulated, undistributed earnings and profits an an S corporation
b. Reduction in the accumulated adjustments account follow more stringent ordering rules than increases in the accumulated adjustments account
c. If there is an overall net decrease in the accumulated adjustments account, then any distribution deduction is applied before any net negative adjustment
d. All of the above
What is the primary reason for treating distributions differently depending on if the S corporation has earnings and profits or not?
a. To increase tax revenues
b. To prevent a corporation from avoiding the double taxation applicable to earning from C corporation activity.
c. To discourage C corporations from electing S corporation status.
d. To make the tax code more difficult thereby providing job stability to tax professionals
An S corporation that is involved in a merger or acquisition should be concerned about:
a. Limiting the number of shareholders to the allowed maximum number
b. The eligibility of the shareholders to be S corporation shareholders
c. The desire of new shareholders to discontinue the S election
d. All of the above
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