5. Which of the following statements regarding a QSST is correct? A. 1t is allowed up to 100 income beneficiaries. B. It requires actively pursuing the QSST status. C. It is allowed to accumulate income. D. The revocation of its election to be treated as such is automatically revocable.

6. Who is treated as the owner of the S corporation stock when a qualified Subchapter S trust (QSST) holds S corporation stock? A. The current income beneficiary. B. The future income beneficiary. C. The executor of the trust. D. The grantor.

7. If a qualified Subchapter S trust terminates during the life of the income beneficiary : A. The trust becomes an ineligible S corporation shareholder and the S election is terminated. B. All of the corpus of the trust is distributed to the income beneficiary. C. The future income beneficiary is treated as the owner of the S corpora- tion stock. D. None of the above.

8. Which of the following statements is correct regarding electing small business trusts (ESBT)? A. An electing small business trust (ESBT) can have only one beneficiary at a time. B. An ESBT is allowed to accumulate income. C. Any interest in an ESBT must have been purchased. D. Al l of the above.

9. A trust that elected to be a small business trust (ESBT): E. Is taxed as if it were a complex trust. F. Computes taxable income from the S corporation separately from other sources of income. G. Files multiple tax returns for each source of income. H. All of the above.

10. Which of the following entities cannot be a shareholder in an S corporation? A. A tax-exempt organization. B. An estate. C. A foreign trust. D. A single-member LLC.

11. Which of the following items must be separately stated on an S corporation tax return? A. Interest income. B. Section 179 expense. C. Tax exempt income. D. All of the above.

12. Which of the following statements is correct? A. All S corporations are subject to the tax on excess net passive income. B. Al l S corporations with accumulated earnings and profits from prior years as a C corporation are subject to the tax on excess net passive income. C. All S corporations that were C corporations before electing S corp- ration status are subject to the tax on excess net passive income. D. None of the above.

13. A corporation that has been an S corporation since its inception can still be subject to the following tax. A. Bu i lt-in gains tax. B. Tax on excess net passive income. C. Tax on LIFO inventory recapture. D. None of the above.

14. The built-in gains tax applies to: A. Disposition of assets in liquidation. B. Disposition of assets not in liquidation . C. Both of the above. D. None of the above.

15. Which of the following statements is correct regarding built-in gains taxes? A. I t is the corporation 's responsibility to prove the fair market value of assets on the date an S election takes effect. B. Built in gains tax can be reduced by carry forwards from prior C corpora- tion years. C. Built in gains tax will apply to assets disposed within 10 years of the corporations first day as an S corporation. D. Al l of the above.

16. The Richardson Corporation has been an S corporation since its inception. 50% of Richardson 's gross receipts are from investment income sources. Which of the following statements is correct? A. Richardson is subject to the tax on excess net passive income. B. Richardson will pay tax on this income at the highest rate applicable. C. Both of the above. D. None of the above.

17. Shannon owns 100 shares (100%) of the Blue Moon S corporation at the beginning of the year. On March 16 (75 days into the year), Shannon sells 30% of her shares to Stepha- nie. Blue Moon produces $ I 00,000 of ordinary income du ring the year. Assuming there is no election made to terminate the tax year, what is the proper income allocation for Shannon and Stephanie? A. Shannon - $52.176; Stephanie - $47,824. B. Shannon - $70,000; Stephanie - $30.000. C. Shannon - $76, 164; Stephanie - $23,836. D. Shannon - $73,000; Stephan ie - $27,000. 18. Shannon owns 100 shares ( 100%) of the Blue Moon S corporation at the beginning of the year. On March 16 (75 days into the year), Shannon sells 30% of her shares to Stephanie. Blue Moon produces $100,000 of ordinary income during the year ($10,000 of income through March 16, and $90,000 of income after March 16). Assuming there is an election made to terminate the tax year on March 16, what is the proper income allocation for Shannon and Stephanie? A . Shannon - $52, 176; Stephanie - $47,824. B. Shannon - $70,000; Stephanie - $30,000. C. Shannon - $76,164; Stephanie - $23,836. D. Shannon - $73,000; Stephanie - $27,000.

19. A shareholder that provides services to an S corporation i n exchange for stock i n the S corporation , will have a basis in the stock equal to: A. His basis i n the services rendered . B. The fair market value of the services rendered. C. His basis in the services rendered pls any gain recognized on the services rendered. D. None of the above.

20. The initial basis of S corporation stock received as a gift (and no gift tax i s paid on the transfer) is equal to: A. The donor's basis in the stock. B. The fair market value of the stock on the date of the transfer.

C. The lower of the donor's basis, or the fair market value at the time of the gift. D. The proportionate share of the value of the corporation 's assets (net of liabilities) that is allocated to the shares. 21 . Which of the following statements is correct? A. A shareholder 's basis in S corporation stock can be reduced below zero only by losses from the corporation , and not distributions. B. The basis of an S corporation shareholder's stock is increased by any add itional contributions he makes to capita l. 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 shareholde 's income. D. None of the above.

22. Which of the following statements is correct regarding years an S corporation has overall losses and distributes cash to its shareholders? A. Items of loss are deducted from shareholders' bases before distrbutions. 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.

23. 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 adjustments account can be negative.

24. An S corporation makes distributions to its shareholders. The S corporation does not have any accumulated earnings and profits from operations 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. Shareholders' bases in stock and treated as a capital gain or loss. D. Shareholders' bases in debt and treated as a nontaxable repayment of the debt. 25. Which of the following statements is correct? A. The accumulated adjustments account is essentially the accumulated, undistributed earnings and profits of an S corporation. B. Reductions 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 i n the accumulated adjustments ac- count, then any distribution deduction is applied before any net negative adjustment. D. All of the above. 26. 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 appli- cable to earnings 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.

27. An S corporation that is involved in a merger or acquisition should be concerned about: A. Limiting the number of shareholders to the allowed maxi m um 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.

21 . Which of the following statements is correct? A. A shareholder 's basis in S corporation stock can be reduced below zero only by losses from the corporation , and not distributions. B. The basis of an S corporation shareholder's stock is increased by any add itional contributions he makes to capita l. 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 shareholde 's income. D. None of the above.

22. Which of the following statements is correct regarding years an S corporation has overall losses and distributes cash to its shareholders? A. Items of loss are deducted from shareholders' bases before distrbutions. 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.

23. 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 adjustments account can be negative.

24. An S corporation makes distributions to its shareholders. The S corporation does not have any accumulated earnings and profits from operations 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. Shareholders' bases in stock and treated as a capital gain or loss. D. Shareholders' bases in debt and treated as a nontaxable repayment of the debt. 25. Which of the following statements is correct? A. The accumulated adjustments account is essentially the accumulated, undistributed earnings and profits of an S corporation. B. Reductions 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 i n the accumulated adjustments ac- count, then any distribution deduction is applied before any net negative adjustment. D. All of the above.

26. 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 appli- cable to earnings 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.

27. An S corporation that is involved in a merger or acquisition should be concerned about: A. Limiting the number of shareholders to the allowed maxi m um 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.