Bob and Joan incorporate their partnership and elect to be taxed as an S Corporation. At the time of incorporation, the partnership owned contributed securities with a basis of $10,000 and a fair market value of $15,000. Two years later the S Corporation sold the securities for $18,000.

Which of the following statements about the tax effects of these facts is false?

Question options:

	The total stock basis of the shareholders is increased by $8,000 as a result of the securities sale.
	The shareholders are taxed on $8,000 of income as a result of the sale
	The S corporation is subject to an entity level built-in gains tax on $5,000 as a result of this sale