Which of the following does not violate S corporation status?
Question options:
1. Having a C corporation as a shareholder
2. Issuing preferred stock
3. Issuing two classes of common stock that have the same percentage of ownership and profit and loss sharing but differ as to voting rights.
4. Having a non-resident alien as a shareholder
2. Net operating loss carryforwards, capital loss carryforwards, and certain tax credits accrued by an S corporation during its C corporation years cannot be used to offset S corporation earnings unless those earnings occur because of the built-in gains tax.
Question options:
1. True
2. False
3. Cynthia and Bonnie are the only shareholders of an S corporation. They each receive a cash distribution of $10,000. Each has a basis of $40,000 in her corporate stock. The balance of the S corporation's AAA is $50,000 and the S corporation has a small balance of $10,000 in an accumulated earnings and profits account from its C corporation years.
Which of the following is a correct statement about the tax treatment of this distribution?
Question options:
1. Each of them has a non-taxable return of capital and a basis in stock afterward of $30,000. The balance in the AAA account after distribution is $30,000.
2. Each of them has a dividend income of $5,000, a non-taxable return of capital $5,000, and a basis in stock afterward of $35,000. The balance in the AAA account after distribution is $40,000.
3. Each of them has a dividend income of $10,000 and a basis in stock afterward of $40,000. The balance in the AAA account after distribution is $40,000.
4. None of the above.