Action Sport is an S corporation owned equally by three shareholders. During the current year, Action Sport generated taxable income of $$60,000.$ What is the tax treatment, if any, of the $$60,000$ income?

Multiple choice question.

Action Sports will report and pay tax on $$60,000.$

Each shareholder will report $$20,000$ in taxable income.

Each shareholder will report the portion of income that he or she receives in cash, and Action Sport will pay tax on the remaining income.

S corporations are tax$-$exempt entities, so there is no tax liability resulting from Action Sport's operations.