ExpertMedium1 markMultiple Choice
CPA · Question 45 · Area 4: Entity Taxation
Which of the following would terminate an S Corporation election?
Which of the following would terminate an S Corporation election?
Answer options:
A.
Having 95 shareholders.
B.
Having voting and non-voting common stock.
C.
Transferring stock to a partnership.
D.
Deriving 20% of gross receipts from passive investment income (for 1 year).
How to approach this question
S Corp Eligibility: Max 100 shareholders. No Corps/Partnerships as owners. One class of stock (voting differences ok).
Full Answer
C.Transferring stock to a partnership.✓ Correct
Transferring stock to a partnership.
Partnerships are not eligible shareholders of an S Corporation. Admission of an ineligible shareholder immediately terminates the election.
Common mistakes
Thinking non-voting stock creates a second class of stock (it doesn't).
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